James Grant, publisher of Grant’s Interest Rate Observer, talks about Federal Reserve monetary policy and Bank of Canada Governor Mark Carney’s appointment as the next head of the Bank of England.Here is a direct link.
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THE FEDERAL RESERVE DOES NOT SET/DETERMINE THE LEVEL OF INTEREST RATES (BOTH LONG TERM & SHORT TERM) !!!!! “Mr. Market” does. So, it’s “Mr. Market” is performing the “Financial Repression”. NOT THE FED !!!!!
This Carney appointment is getting way too much press.
You’re not totally wrong.
Interest rates are the lease costs of money. When the Fed floods the economy with money the lease rates go down. Do they set interest rates…no. Do they influence interest rates…yes.
As long as there is sufficient demand, you can manipulate the price of anything if you can control its supply. For example, labour unions jack up the price of labour by limiting its supply. OPEC does the same for petroleum.
The Fed can and does manipulate the supply of and demand for money/debt and government and agency securities with various facilities and open market operations. The market certainly can be a limiting factor but right now the Fed largely IS the market. They are aided by the fact that the US dollar is still the world’s mostly widely held reserve currency, backed by the world’s strongest military.
Yes, ultimately the credit market is bigger than the Fed, and it can force their hand like it did in the early ’80s when Volker was forced to jack interest rates and prevent a bond market collapse. But to say the Fed has no influence in setting interest rates is clearly false. They do this routinely with their primary dealer network. In fact, primary dealers are obligated to help the Fed manipulate interest rates. It’s all part of the deal.