2024-07-18 07:40:00 ET
Summary
- Fed Funds rate currently above T-Bill rates, historically follows T-Bill direction with a margin for flexibility.
- Fed's belief in market psychology of "Fed in charge", historical misses in predicting recessions.
- The Fed will cut its rate once the T-Bill rate declines and stabilizes long enough at a lower rate for the Fed to believe it can follow.
The question of the day and every day going back 18mos or so is, "When will the Fed cut rates?". The Fed Funds rate is currently 5.33% with T-Bills priced at 5.2%. Fed Funds are above short-term rates by a margin the current Fed Chair believes is sufficient. Historically, the Fed keeps the Fed Funds rate above T-Bill market rates. My historical analyses shows that, but for Paul Volcker's tenure when he actually led in setting rates to quash an inflationary spiral in the early 1980s, other Fed Chairs have followed the direction of T-Bill rates by several weeks once they were sure a trend had begun. They keep a net margin above T-Bill rates to maintain flexibility and not act too quickly should rates rise suddenly....
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When Will The Fed Cut