Question on the fed funds rate —-

Innervoice

Innervoice

Hi guys
Question on the fed funds rate.
Under normal times or historically, where is the fed funds rate relative to the 2 or 10 year ?
Is it always a little below or a little higher ?
Why ?
I keep hearing people say “
The 2 and 10 year are about 3 1/2% while the fed funds rate is only 2 1/2%.. why is that a bad thing?
Thanks
 
Innervoice said:
Hi guys
Question on the fed funds rate.
Under normal times or historically, where is the fed funds rate relative to the 2 or 10 year ?
Is it always a little below or a little higher ?
Why ?
I keep hearing people say “
The 2 and 10 year are about 3 1/2% while the fed funds rate is only 2 1/2%.. why is that a bad thing?
Thanks
More...
%%
THAT's a 3 part question.
The crazy[bad] part is the 2 year[was or] is about the same as 10 years; but logical\ because the people that loan the gov money, dont have much interest in a 10 year loan. Wow. History wise all \the %'s you named are low.
 
Fed funds is the overnight rate. It’s the shortest rate. The different between terms (overnight, 1yr, 10yr, etc.) is the called the “term spread” or term premia. This is the compensation for the time value of money and embeds investors expectations of growth through the periods. If the 2y rate = 10y, it means (generally) that investors don’t think there will be growth between those two periods.

Fed funds rate has the biggest impact on short term rates (t bills such as those maturing within 1yr to 2yrs).

So when the fed raises rates, they are raising the fed funds rate. This should cause the 1-2yr to rise if investors think the fed will continue to raise interest rates through that period. The 10yr will rise if investors think growth will be strong enough — but if they think rate policy will push the economy into a slowdown or recession, then the 10yr will trade below the 2yr (“invert”).
 
Its NOT the same, the 2y-10y is inverted and that by quite a lot. What are you talking about?

murray t turtle said:
%%
THAT's a 3 part question.
The crazy[bad] part is the 2 year[was or] is about the same as 10 years; but logical\ because the people that loan the gov money, dont have much interest in a 10 year loan. Wow. History wise all \the %'s you named are low.
More...
 
BKR88 said:
https://en.macromicro.me/collections/51/us-treasury-bond/762/us-fed-funds-rate-treasury-bonds-rate
More...
If I could give this a double like I would. The Funds rate vs Treasury yield chart is very instructive as to what happens under QE and when the Fed started paying interest on reserves vs the old regime where the funds rate could spike toward infinity if banks had no excess reserves to lend to other banks. A beautiful illustration really! And of course today's fed has removed the reserve requirement. Beautiful, just beautiful. Thanks again!
 
FF is a target rate. It never ever spiked to extreme levels unless it is what the Fed intended. Care to show us a single example where what you claim happened? The fed still mandates reserve requirements. What are you talking about? Stop pushing false information just because you are wished for a different monetary policy world.

piezoe said:
If I could give this a double like I would. The Funds rate vs Treasury yield chart is very instructive as to what happens under QE and when the Fed started paying interest on reserves vs the old regime where the funds rate could spike toward infinity if banks had no excess reserves to lend to other banks. A beautiful illustration really! And of course today's fed has removed the reserve requirement. Beautiful, just beautiful. Thanks again!
More...
 
M.W. said:
Its NOT the same, the 2y-10y is inverted ....... What are you talking about?
More...
%%
THAT's why i said ''about the same '' [2 yr, 10 yr] As far as the idea that inverted chart predicts a recession \ not really.
It could happen, but its sure not a prediction. Most likely you have seen enough charts, on this website [or WSJ] to see my point proved. I've seen enough charts in WSJ to see that point proved.
Looks like the S& P debt downgrade came home to roost on the 10 year;
and like Long+Short nickname noted , could be a'' slowdown'':cool::cool:
[Same subject, but different measure; S+P 500 profit % drop may not near as bad as 2008 so far, AUG 2022 .Yardini Research]
 
M.W. said:
FF is a target rate. It never ever spiked to extreme levels unless it is what the Fed intended. Care to show us a single example where what you claim happened? The fed still mandates reserve requirements. What are you talking about? Stop pushing false information just because you are wished for a different monetary policy world.
More...
Did you look at the chart??? By the way, consistent with other Western nations, Canada, Australia, etc., the fed dropped the reserve requirement sometime back. (Doesn't mean banks don't need reserves!)
 
I looked at the charts, nothing extraordinary whatsoever. Removing reserve requirement ratios is not the same as lowering them. They only happened to be reduced to zero in 2020 because of the extraordinary events that year. They are generally positive.

piezoe said:
Did you look at the chart??? By the way, consistent with other Western nations, Canada, Australia, etc., the fed dropped the reserve requirement sometime back. (Doesn't mean banks don't need reserves!)
More...
 
You must log in or register to reply here.
Back
Top