Michael Dunton emails that the effective Fed Funds rate is at 0.20%.
In other words, we are only 5 basis points away from the top range of the Fed's target rate. What will the Fed do if the rate hits 0.25%, supply the market with reserves, a highly inflationary move?
Commenting on Friday's ruling by the Second Circuit Court of Appeals in New York that the Federal Reserve had to disclose borrowers from the discount window: "Well, I think the Chairman has said on many occasions that it's not a good idea to be revealing people who are borrowing at the discount window. That can trigger a run and really could be a very contagious thing that goes from bank to bank to bank and then you collapse the whole banking system. So this is a case where -- I'm all for revealing as much information as possible, but this is a case where it could be very dangerous, so I think we oppose that," related St. Louis Federal Reserve President James Bullard in CNBC Video entitled Fed's Bullard Speaks ... http://tinyurl.com/yzete3c ... He goes on to say that the "extended period" language is putting us in a box.
ReplyDeleteRobert Wenzel in EconomicPolicy Journal article Back To 20... http://tinyurl.com/yddgu7b ... relates that Michael Dunton emails that the effective Fed Funds rate is at 0.20%. In other words, we are only 5 basis points away from the top range of the Fed's target rate. What will the Fed do if the rate hits 0.25%, supply the market with reserves, a highly inflationary move?
My comment is when the Fed Funds rate reaches 25, that there could be a liquidity evaporation, where there could be a run on money market funds breaking the buck, that is, their constant one dollar value; there could be other liquidity evaporations, such as the inability to obtain one's funds from the investment broker; and I expect to see the yield curve steepen as reflecting in the ratio of TBT to PST rising, causing long term US Treasuries, TLT, to fall, and the price of gold, GLD, to inflate, and the US Dollar, UUP, $USD, to fall in value.
The Yahoo Finance chart of the yield curve, seen from the spread between TBT and PST, ... http://tinyurl.com/ycb8rze ... shows that a leading factor for a rising price of gold has been a steepening yield curve.