You will have heard that the Fed recently reduced the Federal Funds Rate by 50 basis points.
But do you know HOW the Fed cuts interest rates?
The method the Fed uses to control the Federal Funds Rate now is very different from the method it used before it launched Quantitative Easing in late 2008.
This week’s Macro Watch On Substack video explains the Fed’s new method for controlling interest rates and discusses why the Fed was compelled to adopt a new method in the first place.
This video makes clear that interest rates today would be much lower than they are – despite the government’s very large budget deficits – if the Fed were not intervening to keep them high.
It also shows why, in addition to the Federal Funds Rate, market-determined interest rates, such as government bond yields and mortgage rates, are also likely to continue moving lower – and why the stock market could keep moving higher – during the months and quarters ahead.
If you have any questions or comments on this video, please let me know.
