Tag: The Federal Reserve

I suppose it would have been out of character or asking too much to expect Janet Yellen’s Federal Reserve, at her last meeting as Fed chair, to act decisively and do something that needed to be done. Instead, playing to form, The Fed elected not to raise the federal funds rate at its January monetary policy meeting. Now we will have to wait another two months, March 20-21, the Fed’s next meeting, for the central bank to get back to normalizing interest rates.

For most of the past four years, the Yellen-led Fed has preferred to sit on its hands and let asset bubbles get bigger and bigger and leave interest rates pretty much alone, even in the face of a burgeoning economy. Instead, it has let its obsession with inflation – it’s too low, in their view, not too high – dictate monetary policy, whether that fixation has a basis in fact or not.

Since the beginning of last September, the yield on the benchmark 10-year Treasury note has soared about 75 basis points, from just over 2.00% to more than 2.75% at its most recent peak, putting it at its highest level in nearly four years. The yield on the two-year note, which is more susceptible to changes in short-term interest rate changes, is up about 90 bps in that time, to about 2.15%. Continue reading "The "Do Nothing" Fed Does It Again" →

After four years as Federal Reserve chair, Janet Yellen makes her swansong at this week’s monetary policy meeting (no disrespect to Ms. Yellen, but it seems like a lot longer, doesn’t it?), at which time she will likely welcome her successor, Jerome Powell, who was finally confirmed by the Senate. Her term officially ends on February 3, at which time she has said she would also step down from the Fed’s Board of Governors, where she was entitled to remain for another six years.

While most observers believe Powell won’t deviate too far from the dovish, don’t-rock-the-boat policies of his predecessor, I think he’s likely to be a little more hawkish in raising interest rates, if for no other reason than to skim some of the froth from the stock market. Another quarter-point increase in the federal funds rate at next week’s meeting would be a good signal about what to expect from the Powell Fed going forward.

I’m still not entirely sold that inflation won’t at some point in the future rear its ugly head once again, mandating a more aggressive interest rate-raising policy, but the bond market – based on still relatively low long-term Treasury bond rates – apparently has yet to be convinced. Still, inflation, whether just boiling under the surface or several years down the road, isn’t the only reason the Fed needs to be more hawkish. Taking some air out of asset bubbles – whether they be in old-fashioned equities or yet-to-be-tested cybercurrencies – that has primarily been the result of the Fed’s overly accommodative monetary policies is a good enough reason to do so. Continue reading "Farewell Janet, Welcome Jay" →