Fed Strikes Out on Rates; Market Wants a Hit
Bond Rates and Stock Prices are volatile because the Fed has forgotten about Deposit Pricing.
Deposit Pricing is lagging far behind Fed Funds.
Investors, Savers and Mike Mayo know why the lag.
Fed Team Rate Decision: Up, Down, or Rain Out?
Major League Baseball is starting and the Fed Team has two strike outs with the last rate changes. If the Fed decisions are data dependent how could it miss deposit pricing? Jane and Joe depositors at banks, credit unions, thrifts and FinTech firms are getting far less than the Fed Funds rate for their savings. Betty and Bill small business people are getting less too. If the Fed wants to increase rates back to Pre-Great Recession levels – 2008 and before, it must factor deposit pricing into its decisioning.
The major conclusion of the Moebs $ervices, an economic research firm, Interest Rate Study is the gap between deposit pricing and the Fed Funds rate is enormous and peaking close to the Depression Era. This gap has to be narrowed by increases in deposit pricing by financial institutions.
The sequence is: Fed Funds Rate > Deposit Pricing > Treasury Bills > Treasury Bonds. Leave out any one rate in the sequence and the Fed will strike out every time.
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Written By: m.moebs
Date Posted: 4/1/2019
Number of Views: 586