Thursday, March 4, 2010

Alert: Effective Fed Funds Rate Up

This should be monitored very closely.

The effective Fed Funds rate has been climbing over the last couple of days. The climb has been slight, but it is unusual. The rate had been trading fairly consistently around 0.12%.

On Monday and Tuesday it climbed to 0.14%, yesterday it hit 0.15%. It hasn't been this high since the summer. Again this is a slight climb, but it suggests that a bank, or banks, is getting more aggressive for funds or the Fed is draining funds, or banks are putting less money into the Fed Funds system.

The key rate remains the interest rate on excess reserves (OIER), which is at 0.25%

Bernanke has remarked in testimony that it has been more difficult to control the funds rate, perhaps this has something to do with the clmb. Nevertheless it should be monitored as a kind of a slight outlier activity. It could mean nothing, it could be significant in a way that will reveal itself in days to come.

1 comment:

  1. RW,

    It'll be interesting to see what the effect of the Fed's concluded MBS buying spree will be on mortgage rates and whether it spills over to other rates.

    I think that the Fed thinks that we bank dudes will all jump at these lousy yields once a few of us jump into the water to lap up sub 5% MBS, therby doing the low yield dirty work for them by using our cash hoards.

    Ah, the best laid plans...

    You literally have days to refinance...