Interest rate data in the graph below. Red and green are 5-year rates. Blue is the Federal Reserve policy rate:
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| This Graph at FRED: https://fred.stlouisfed.org/graph/?g=1uaVr |
Everything fell in March 2020, because of Covid.
The five-year rates were increasing by October 2020. The Federal Funds rate didn't begin to increase until March 2022.
The increase of the five-year rates started decelerating by May of 2022. The Federal Funds rate did not begin to decelerate until December of that year.
The five-year rates started falling after October 2022,
and after October 2023, and after April of 2024. The Federal Funds rate
did not fall, at all, between March 2020 and September 2024.
The five-year rates were constantly exploring their options: going up a little, testing the water, going down a little, and down a little more, changing their mind and rising, always testing the water. The Federal Funds rate fell to zero and sat there for two years. When it started rising, it rose continuously for a year and a half. And when it peaked, it stayed at the peak rate for a full year.
Sure, the Fed has a different objective than private investors. But when you refuse to change your interest rate decisions for long periods of time, you paint yourself into a corner. And when you finally do decide to change the rate, you suddenly discover you are behind the curve and you need to make oversized changes rather than small, cautious, gentle ones.
It's not like the Fed is new at this. It's like somebody convinced them to create some crazy 9 percent inflation, and follow up with a recession. That's what it's like.
1 comment:
My notes of 23 Sept 2024:
https://fred.stlouisfed.org/graph/?g=1uaVr
green and red are close to identical
Blue -- FedFunds -- runs at zero from April 2020 thru Feb 2022
(Came down to zero sometime in March 2020 and rose up from zero sometime in March 2022.) It rose from March 2022 to August 2023, then stayed at the August 2023 level until we run out of graph in August 2024. [Oct 28 2024 update: The graph shows the FedFunds rate dropping in September 2024.]
Green is high-quality 5-year corporate bonds. Red is 5-year treasuries, which run somewhat lower than high-quality corporate.
Red and green go low with the onset of Covid [in March 2020].
Both start rising around September 2020. The Federal Funds rate remains at zero.
Both show definite increase from November 2020 to March 2021, when Fed Chair Jerome Powell warned that inflation was coming.
Red and green start rising again in August 2021. Red reaches 2.11 percent and green 2.87 percent by March 2022 when the Federal Reserve increases the Fed Funds rate up from zero. Now all three rates are rising.
Blue (the FedFunds rate) reaches a high in August 2023.
Red and Green peak in October 2023 and start to fall.
Blue remains at the August 2023 high until September 2024. (That was in the news just the other day.)
Red and green peak in October 2022, then relent. They begin rising again in April 2023 and peak in October 2023.
It looks to me like the Federal Reserve was late to the party, starting to raise rates a year and a half after red and green.
And the Fed was late to the party lowering rates, eleven month behind the red and green lines.
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