Should Fed follow libor?

[kashirin]

Libor is signficantly higher than Fed funds rate for about a month

Does it means Fed should stop speculating about rate cut and follow the market and rise rates?

 

[nitro]

There is an article about this in todays WSJ.

IMO, LIBOR and FFs will go in two different directions for the near future, and will probably converge somewhat later in the year, but I doubt it goes back to pre-credit-market-woes levels.

nitro

 

[sjfan]

Quote from kashirin:

Libor is signficantly higher than Fed funds rate for about a month

Does it means Fed should stop speculating about rate cut and follow the market and rise rates?

How does this make any sense? LIBOR = Risk Free + AAA/AA Bank Risk Spread. The risk spread is up across the board (to some degree).;

 

[daddyeaux]

something must really be broken.....

fire up the helicopter

 

[Mr B]

Fed, ECB and BoE don't need to hike rates again, the money market has already done it for them a few times over.

big issue with the disparity between cash market and derivatives is that big banks hedge their cash exposures in the derivatives (swaps are following the FFs)- hence if the two are moving in different directions hedging is not possible, exacerbating the problem.

Libor normally trades at 3-10 bps above base rate for overnight. maybe 15-20bps over base rate for 3 month. Last Friday GBP was at +100bps for 3 month.

That's the quivalent of 4 BoI rate hikes in August alone.

Given that most corporates borrow in 3 month paper, and most variable mortgages are based on 3 mth Libor, the 3 month Libor rate is the ACTUAL cost of borrowing, the base rate is just a benchmark.

 

[daddyeaux]

M3 money supply is still smokin'

 

[Mr B]

M3 is not the level of cash in the money market - money market volume is best measured by volume of 1mth and 3mth commercial paper sold each month, which has gone down like free beer in the last 10-15 weeks.

M3 is the level of totally liquid cash in public possession

when was the last time you made a major purchase using cash?

does anyone remember a number called P*? it was big in the 80s......like non farm is now

 

[DrOlmifon]

Quote from kashirin:

Libor is signficantly higher than Fed funds rate for about a month

Does it means Fed should stop speculating about rate cut and follow the market and rise rates?

I really hope you're never in a position to be elected fed chairman, LOL.