The all important effective funds rate closed today at 0.21%.
This is up 3 basis points from Friday's close and just 4 basis points away from the upper limit on the Fed Funds target rate 0.25%.
What will the Fed do if 0.25% is pierced? Will they supply more reserves to a system with a trillion dollars on the sidelines? Will they raise the IOER?
Special thanks to Michael Dunton of Mt. McKinley Bank who supplies me with the closing rates.
Mike notes the T-Bill rates are also climbing:
Treasury bill auction for Auction Date: 3/15/2010
4 weeks bills
0.110 today versus 0.080 last week
13 weeks bills
0.165 today versus 0.150 last week
26 weeks bills
0.240 today 0.205 last week
Something is brewing and I don't think there are many that realize it. Wow.
I would not be in the stock market, except for special situations and on the short side.
The Fed will have no choice but to do whatever it takes to maintain the target rate, otherwise it loses all credibility (which should have already been lost as a result of the financial crisis!). This recent spike is potentially indicative of a problem brewing, although I still remember when on 10/25/07 the intraday high fed funds rate was 15%.
ReplyDeleteThe relevant data can be found here:
http://www.newyorkfed.org/markets/omo/dmm/historical/fedfunds/index.cfm