Fed Follows the Market

Fed Follows the Market

FLASH: No matter what the Fed Fund’s rate is they cannon make people borrow.

The Big Q: What happened with Wednesday’s Fed announcement?

The Big A: The Fed followed the market again.

The chart below: the red line is the Federal Funds rate, the yellow line is the rate on the 3-month US T-Bill and the green line is the rate on the 6-month US T-Bill. The latter 2 rates are freely-traded in the auction arena, while the former rate is set by the Fed.

Now observe the grey ellipses. Throughout 2017-2018, the rates on 3-and-6-month US T-Bills were rising steadily, pushing above the Fed Fund’s rate. During the period shown on the graph, the Fed raised its interest rate 6X, each time to keep up with the rising T-Bill rates. The interest-rate market is the dog wagging the Fed’s tail.

Now note what T-Bill rates have been doing since November of last year; they have stopped rising. Rates have moved net-sideways, which was the market’s way of signaling that the Fed would not raise the Fed Funds rate Wednesday.

Lots of investors and pundits obsess over whether the Fed will raise or lower the Fed Funds rate, and what it all means: 1) if you want to know what the Fed will or will not do, look at T-Bills, as shown on the chart and , 2) whatever their action, it does not matter because the Fed’s interest-rate policy cannot force people to borrow.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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