Dec 23, 2015

How Did The Fed Raise Rates?


If you want to do something fun and kind of mean this holiday season, find your local financial know-it-all, and ask them to explain how the Federal Reserve raised interest rates this year. In all likelihood you will see a distant look come across their face, perhaps a slight flush in the cheeks followed with some mutterings about “open market activities”, accompanied by awkward and involuntary hand gestures. Thank them kindly, and don’t tell them the truth about why you asked.

For the strange folk who actually want to know what the Federal Reserve did to raise interest rates, the linked commentary below provides a good overview of the mechanisms employed. It also delves into the historical context surrounding the Fed’s manipulation of the monetary base and it’s affect on interest rate levels. I don’t agree with everything the author says but I do find it interesting.

Link: “From the standpoint of investors, the overall effect is just as if the Fed had suddenly reversed every dollar of quantitative easing since 2009 ($1.7 trillion).” – Hussman Funds, Reversing the Speculative Effect of QE Overnight

Happy Holidays

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