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Very Hot Topic (More than 25 Replies) - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds (Read 182 times)
TowardLiberty
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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #20 - Aug 14th, 2019 at 1:16pm
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admin wrote on Aug 14th, 2019 at 1:10pm:
- sure investors would- high inflation would mean investors would only buy or hold a long term bond at a high yield - no matter how many the Fed bought - no one would want a sure loss on a bond because of high inflation - they would buy alternative better investments stocks and gold and realestate

Bingo. So it does matter who is buying.
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #21 - Aug 14th, 2019 at 1:17pm
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TowardLiberty wrote on Aug 14th, 2019 at 1:11pm:
In 2015, it did want it and even rallied after the announcement. The switch in policy signaled confidence in the economy. We no longer needed extraordinary emergency measures to support the economy.

By late 2018, markets we're already under pressure from trade war woes.

But ultimately I agree with you that contractionary monetary policy (to target higher rates) will tamp down economic activity and asset prices.

That's the whole goal. You do that in the good times so you have ammo to shoot in the lean times.

Look at the markets from 09 to the present. It's clear we had an amazing run. A 10 year recession? Nonsense.

We've been living high on the hog. It's been a boom period.

It hasn't always been equally felt on main street, in real wage growth, or labor force participation, but it's simply untrue to say we have not been in an a very long expansion.

- a one/two percent economy for 10 years was good??

- no - the Fed shouldn't be manipulating or killing economies to "save" it later - let the economy grow or fall on its own and markets decide - not the Fed - they are often the cause of bubbles and busts - whats the Fed? - arsonists? - burn it to save it later?
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #22 - Aug 14th, 2019 at 1:20pm
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TowardLiberty wrote on Aug 14th, 2019 at 1:16pm:
Bingo. So it does matter who is buying.

- no it doesn't matter much if any that the Fed buys bond
- like i said above "- high inflation would mean investors would only buy or hold a long term bond at a high yield - no matter how many the Fed bought "
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #23 - Aug 14th, 2019 at 1:24pm
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- the market says long rates are low - the Fed shouldnt fight the market
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #24 - Aug 14th, 2019 at 1:27pm
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Vypr wrote on Aug 14th, 2019 at 12:22pm:
Preparing the excuses to blame anyone but Trump when the economic downturn comes.


Must protect the Golden Gaffe   ...
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #25 - Aug 14th, 2019 at 1:27pm
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The fed was enacted specifically to moderate the fierce whims of the market.  You seem to be extolling the virtues of high volatility, but most people would much rather see a decade of 1-2% growth than 5 years of boom followed by a crippling recession.
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #26 - Aug 14th, 2019 at 1:43pm
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admin wrote on Aug 14th, 2019 at 1:17pm:
- a one/two percent economy for 10 years was good??


It counts as an expansion. GDP growth rates reached 2.5%, 2.6% & 2.9% during the Obama admin. We haven't topped those numbers since. https://mgmresearch.com/us-gdp-data-and-charts-1980-2020/

Part of the story here surrounds the fact that the recovery was not always broadly shared.

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- no - the Fed shouldn't be manipulating or killing economies to "save" it later - let the economy grow or fall on its own and markets decide - not the Fed - they are often the cause of bubbles and busts - whats the Fed? - arsonists? - burn it to save it later?

You're speaking my language! Its far better for the Fed to play a neutral role, neither stimulating nor contracting. But that's not their mandate. They have a different framework. They try to target price stability and low unemployment. This is social engineering. This is central planning.

And we should never be so naive as to think it will "work" in the sense of being able to successfully coordinate the economy.

But if this is our "woke" insight, then we need to be even more guarded against calls to stimulate the economy or cut rates, for this is what sows the seeds of the unsustainable boom and is why rate hikes become necessary.

Get rid of the booms and you will have fewer busts.

What is the neutral rate? I don't know but my money is on it being higher rather than lower.
« Last Edit: Aug 14th, 2019 at 2:06pm by TowardLiberty »  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #27 - Aug 14th, 2019 at 2:05pm
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admin wrote on Aug 14th, 2019 at 1:20pm:
- no it doesn't matter much if any that the Fed buys bond


I think it does matter and which maturity they target ALSO matters. See "operation twist."

The entire point of QE bond purchases was to target lower rates of interest.
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- like i said above "- high inflation would mean investors would only buy or hold a long term bond at a high yield - no matter how many the Fed bought "

That's true. They would sell the bond cheap. But we don't have a high inflation environment. So they're not selling those long dated bonds cheap. In fact, because of present anxiety about global growth, trade, etc, investors are bidding those long term bonds up.

And you know what that means for long term rates...

We're back to understanding the yield curve as a market phenomenon under government influence.
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #28 - Aug 14th, 2019 at 2:46pm
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TowardLiberty wrote on Aug 14th, 2019 at 1:43pm:
What is the neutral rate? I don't know but my money is on it being higher rather than lower.

- the market tells you - long term 10yr. rates are uner 2%
- so the short term Fed rate should be a fraction of that - half? 60% 67% of the long rate?
  

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Re: - Fed inverts yield curve - Fed funds rate at higher rate than long term bonds
Reply #29 - Aug 14th, 2019 at 2:53pm
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admin wrote on Aug 14th, 2019 at 2:46pm:
- the market tells you - long term 10yr. rates are uner 2%
- so the short term Fed rate should be a fraction of that - half? 60% 67% of the long rate?

Wait a minute. Now you're telling me the 10 year rate is THE market rate? What happened to Fed intervention? I thought the Fed "inverted" the yield curve.

If they are not pushing long term rates down, you must assume they are pushing short term rates up...

So that means open market sales of short term treasury securities. Otherwise, how is the Fed responsible? (your claim- not mine)

That said I do agree Op Twist & QE pushed long term rates lower than they would have been otherwise. But I don't look at policy moves made in 2011 to explain yesterday's yield curve inversion.
  

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