Do Central Banks Really Control Interest Rates?

Everyone believes that the modern central bank is an omnipotent economic force. What if it isn’t? What if it can’t even do the most basic of things that it says it can – control interest rates?

You Need To Know The Fed ISN’T Important. Here’s Why 1

Asking the question almost feels sacrilegious, given how everyone is taught that the central bank sits in the middle of modern finance, and that nothing happens in markets without their sanction.

On top of this, the vast majority of financial folk believe what they were taught, which makes questioning the central bank-centric model a lot more difficult.

But, do central banks actually control interest rates?

Read Article

You Need To Know The Fed ISN’T Important. Here’s Why 2

The Fed gauges conditions in financial markets, and the markets try to predict the Fed - is this not a circular reference?

In order to see if the Fed continues to take longer before raising rates, we will have to see how long they wait before raising rates in the current cycle.

This of course raises the very valid question, is it not reasonable for the Fed to take longer to make their decisions given very uncertain economic conditions?

Read Article

The Fed’s New Repo Misdiagnosis. The SRF Won’t Work 1

Fed misdiagnoses problems in the repo market

The Fed has announced that it will establish two new repo facilities, one domestic Standing Repo Facility (SRF), and the other international.

The purpose of which is to ensure that funding markets have ready access to cash during times of acute market stress. While this is a positive step, in the sense that the Fed is actively trying to pre-empt future market meltdowns, it is unfortunately one that will not work.

Here’s why.

Read Article

The Fed’s New Repo Misdiagnosis. The SRF Won’t Work 2

Fed misdiagnoses problems in the repo market

While the Fed has misdiagnosed the collateral issues plaguing the repo market, it is important to understand that its new Standing Repo Facility (SRF) can alleviate some pressure in the financial system during times of crisis.

Read Article

The Fed Does NOT Know Better Than The Market. Here’s Why

The Fed gauges conditions in financial markets, and the markets try to predict the Fed - is this not a circular reference?

Of course, if the Fed can prove that it has the ability to better predict the future than the bond markets it closely follows, then the central bank should take all the time it needs before changing its policy stance.

However, as the financial crises of 2008 and March 2020 so painfully show, the Fed does not know more about the future than everyone else.

Read Article
1 2 4

the pensive nugget logo transparent background

Get a different perspective on all things trading & investing every week!

the pensive nugget blue background logo

Get a different perspective on all things trading & investing every week!