nonsense. it is funny to see how some people get easily confused when looking at a misleading graph. t-bills follow fed funds and trade below them due to a huge liquidity pool and international demand (largely oil money in this segment). all previous 17 hikes was done on the basis that at each meeting fed basically announced that the next meeting they are going to hike - so only then the t-bills started to catch up - and with approaching meeting t-bills discounted less and less the probability of no-hike. In fact the guy who posted the blog shits on you twice. He intentionally cut Katrina out of the picture - which would unsurprisingly look very similar to the recent behavior and therefore not serve his purpose. And did we get a cut then? Go back to sleep. anyway, I second Brandonf's post. In fact I'm hearing that recently there was first significant pricing of oil in Yen (for Nippon Oil out of Iran). God Bless America.
Really! I could be wrong, but, I don't recall a 200bps spread in 91t-bills to Fed Funds EVER!--not during Katrina either. Is there any way you could show this. Thx in Adv.
not since 9/11. by the way the usual discount is about 25bps, curent discount is about 100bps (not 200bps). but! that was not the topic of the post - the topic was if there is a causal relationship between fed fund rate and t-bills. I claimed that it is a mirage. Anyway, irrespective if the relationship is there or not you seem to suggest that if t-bills goes significantly down (relative to fed funds target rate) due to any circumstances that the fed should respond by cutting fed funds target. ehm...maybe aren't YOU Mr. Kudlow after all?
A 200bps spread is more than significant; and it's the range in which rates trade, that matters. I wasn't implying the current spread is 200bps. However, you said the spread was similar during Katrina and I don't recall that. Which is my point, this wide of spread has forced their [The FED] hand. similar to 9/11 which was a catastrophe. The market is not working properly for a stable economy. That's why the FED needs to act and not wait for Econ reports to tell them what the pit is screaming. arguably, the FED had to wait just to make sure. But now, the problems are in the prices and the FED can't wait any longer. The Federal Reserve follows the market. The FED does not, or should not dictate to the market as you seem to suggest. Contrary to popular belief, this is still a democracy. And if I'm Kudlow then you must be Lou Dobbs.
lol. you nailed me . fed should not always do what market tells them to do. otherwise the fed is useless and should be abolished while markets would decide everything on their own. Maybe we can print money privately as well... that said fed should intervene as least as possible (which they try to do for instance by not fighting asset bubbles) and only with their mandated objectives in mind (inflation/employment). I don't understand your comment about democracy - is it possible that you confuse democracy with a free market and with conduct of monetary policy? note that if fed did follow the market they were cutting during katrina for instance, then they were cutting 4 times during last autumn/winter etc. - in retrospect would it be a good thing?
You don't understand at all. t-bill rise was influensed by the rating agencies that were unable give ratings so there is no confidence AAA is not AAA any more. And rate cut won't change it. You need to restore confidence. I won't lend, nobody will lend - no matter what target rate Fed will offer Everybody will stay in t-bills or just sell USD Fed will need to print another trilion dollars and cut to 0 and it won't help COnfidence must be restored. Maybe government backed rating agency which will guaranty AAA papers. I don't know but that's a confidence crisis and rate cut will not change anything