Rates are at an eight-month low right now – about 1/2 percent lower than they were at their peak in October.
I should add though that they still remain about 1/2 percent higher than they were last year at this time.
So, did the Fed finally achieve its stated goal of pushing up rates?
Not in the way anybody expected.
According to former Senate Banking Committee Chairman Phil Gramm, the Fed now has less control over interest rates than at any other time in its 105 year history.
I won’t go into all the details, but it has to do with its massive bond holdings (almost $4 trillion) and the excess reserves in the banking system.
The Fed can influence rates in the short term with its actual policies and statements, but the markets now seem to have much more say in the matter than the Fed.
We are watching this currently, as the Fed’s short-term rate increases are not resulting in long-term rate increases like we have seen in the past.
What this means is a repeat of what I have been saying repeatedly over the last several years – nobody really has any idea of what will happen with rates (or anything else for that matter – remember Mr. Trump’s election?)
A slowing world economy could continue to bring rates down, or a resurgence in bank lending (according to the article referenced above) could spark an inflationary spiral that will send rates through the roof.
Suffice it to say that we will see a lot more volatility in both the stock and bond markets for a long time to come.
What is really scary though is what will happen when everyone figures out that there is no way that the world can ever pay back the $250 trillion in worldwide debt that has built up over the last ten years.
When that happens, today’s environment will seem like very calm sailing.
Lastly – despite the uncertainty, many pundits are now predicting low (and even declining) rates throughout 2019.
