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- Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Aug 14th, 2019 at 11:42am
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- Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
- not a smart Fed - they were wrong to have high rates
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #1 - Aug 14th, 2019 at 11:55am
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admin wrote on Aug 14th, 2019 at 11:42am:
- Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
- not a smart Fed - they were wrong to have high rates

The Fed does not control the yield curve.

That yield curve inversion reflects recession fears. It's a market price.
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #2 - Aug 14th, 2019 at 11:58am
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How worried should you be?


Experts say to to remain alert but aware that recessions don't always follow inverted yield curves. "False positives do occasionally occur: the first inversion isn't always the one that ultimately signals a downturn," the TD Securities analysts noted.

And August -- as well as election years -- tend to be tough for stocks on a historical basis, according to analysts at LPL Financial and Natexis.

"Corrections tend to occur this time of year, so even though we expect stocks to move higher between now and year-end, some bumps can be expected," wrote John Lynch, Chief Investment Strategist, LPL Financial, in a research note earlier this month.


In the meantime, the inverted yield curve could mean a recession -- but in two to three years, The Earnings Scout's Raich said.

https://www.cbsnews.com/news/inverted-yield-curve-recession-worries-the-yield-cu...
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #3 - Aug 14th, 2019 at 12:00pm
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Raising rates during the top of a bubble, after prolonged periods of stimulus, is textbook central banking.

It's not stupid. To not tighten would actually be stupid and irresponsible. The CB needs ammo for the next downturn.



  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #4 - Aug 14th, 2019 at 12:11pm
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TowardLiberty wrote on Aug 14th, 2019 at 11:55am:
The Fed does not control the yield curve.

That yield curve inversion reflects recession fears. It's a market price.

- you forgot your answer of how the Fed raising rates can drive down long rates - that's what the Fed did - invert the yield curve
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #5 - Aug 14th, 2019 at 12:15pm
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admin wrote on Aug 14th, 2019 at 12:11pm:
- you forgot your answer of how the Fed raising rates can drive down long rates - that's what the Fed did - invert the yield curve

Yes, but that does not apply in a situation when the Fed is cutting it's overnight rate. We're easing, not tightening.

If you want to know why long term rates are so low, it is two-fold.

1. The Fed has bought up the long end of the treasury curve, pushing down long term rates
2. Nervous investors rush into treasuries when recession fears rise

Both of these answers are relevant to why we have an inverted yield curve, yet neither gets a mention in your post. Rather you harp on something the Fed is not even doing!
« Last Edit: Aug 14th, 2019 at 3:49pm by TowardLiberty »  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #6 - Aug 14th, 2019 at 12:15pm
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TowardLiberty wrote on Aug 14th, 2019 at 12:00pm:
Raising rates during the top of a bubble, after prolonged periods of stimulus, is textbook central banking.

It's not stupid. To not tighten would actually be stupid and irresponsible. The CB needs ammo for the next downturn.




- what long bubble? - 10 years of flat 1 percent economy mostly leading to and under Obama
- the long rates were low all over the world - because of low inflation
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #7 - Aug 14th, 2019 at 12:19pm
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TowardLiberty wrote on Aug 14th, 2019 at 12:15pm:
Yes, but that does not apply in a situation when the Fed is cutting it's overnight rate. We're easing, not tightening.

If you want to know why long term rates are so low, it is two-fold.

1. The Fed has bought up the long end of the treasury curve, pushing down long term rates
2. Nervous investors rush into treasuries when recession fears rise

Both of these answers are relevant to why we have an inverted yield curve, yet neither get's a mention in your post. Rather you harp on something the Fed is not even doing!

- i always  say inflation is low world wide - over supply of everything - that's why long rates are low
- makes little difference the Fed buying long bonds - they could buy 95 percent of all long bonds and if there was high inflation the yields would be high and bond prices low- investors would dump the last 5 percent supply cheap to bring yields high (if high inflation)
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #8 - Aug 14th, 2019 at 12:22pm
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admin wrote on Aug 14th, 2019 at 11:42am:
- Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
- not a smart Fed - they were wrong to have high rates

Preparing the excuses to blame anyone but Trump when the economic downturn comes.
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #9 - Aug 14th, 2019 at 12:28pm
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admin wrote on Aug 14th, 2019 at 12:15pm:
- what long bubble? - 10 years of flat 1 percent economy mostly leading to and under Obama

I probably should have said "expansion," but I chose "bubble" because I tend to link the recovery to monetary policy and perhaps that's a partial misread.

Regardless, the expansion started in 2009 and was real old in the tooth by the time the Fed started tightening.

And the Fed telegraphed their plans to reduce their balance sheet and tighten for a long time before they actually started. It's what the market wanted to avoid blowing an even bigger bubble.

The key question was how to normalize policy without spooking markets.
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- the long rates were low all over the world - because of low inflation

Because of low inflation & growth.

We've discovered that central bankers aren't as all-powerful as we once thought. They can create money but creating inflation has proved illusive.

Perhaps a liquidation approach in 2008 would have been better for growth in the here and now.
  

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"It was the union of the anticapitalist forces of the Right and of the Left, the fusion of radical and conservative socialism, which drove out from Germany everything that was liberal.” F A Hayek
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