Why Does the Fed Funds Rate Even Matter???
Massive subsidy to counterparties
Highlights of the FED Minutes (https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20221214.pdf)
Both market- and survey-based measures continued to point to expectations for a moderation of inflation over the coming year
Both market- and Desk survey-based measures indicated expectations for the Committee to maintain elevated policy rates through 2023
Ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives
No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023
Furthermore FEDs Kashkari, said
Appropriate to continue rate hikes "at least at the next few meetings" until confident inflation has peaked, then should hold target rate which he sees at 5.4%
This morning FEDs George stated,
Favors keeping rates above 5% and staying there for some time
We will talk about that very point of raising Fed Funds up to 5%. We may want to look at that a bit more as to what effect it really has on the overall economy. We feel that it doesn’t really change things much in regards for Main Street, other than punishing them with higher interest costs under the guise of lowering inflation (which is already coming down), but first, lets look at what the FED minutes achieved.
We know that the FOMC must paint the hawkish picture, as we have said time and time again that INFLATION expectations is actually much more dangerous than transitory inflation spikes, especially ones caused from fiscal short term stimulus.
It is in that very nature of expectation via consumers that the FOMC targets and rightfully so, they do not want inflation anchored to a higher perception, then it becomes sticky and hard to fight. So we agree on that front. What we also know is that talking the talk and walking the walk in the future is a whole other animal and if prices continue to crash and the economic numbers do start to show signs of worsening, the FED will abruptly change course.
So back to the point about the FED Funds rate and raising it up to 5%. Back before IORB (Interest on Excess Reserve Balances) the FED Funds rate was the main tool to control credit, however today, controlling or tightening/loosening credit is NOT THE ISSUE!
Why do we say this?
Because there are $3 Trillion in Excess Reserves, I.E. Bank money that is not going anywhere, not into C&I Loans, not into Main Street loans, its going nowhere.
Why is it going nowhere?
Because it earns a risk free interest rate. As of right now IORB is paying a hefty 4.40% on $3 Trillion!
Let’s quantify that 4.40% x $3T = $361.6 Million dollars per day! Annualized is $132 Billion! Now lets add onto that the RRP rake the FED pays out:
Let’s quantify that 4.30% x $2.23T = $262.7 Million dollars per day! Annualized is $95.9 Billion!
So all in all today, the total risk free payout to Federal Reserve eligible participant counterparties is = to $624.3 Million dollars per day and $227.9 Billion per year, FOR DOING NOTHING!
Do you see why Bitcoin blockchain ledger based technology is enemy #1, if not you just aren’t looking.
So with all this data in mind, maybe the FOMC realizes the fiat Ponzi scheme is so far out of touch with reality that maybe the Fed Funds rate is the new discount window.
We mean, how many commoners, or even financial market practitioners truly understand what we have outlined? We would suspect 1 out of 500, this may be generous…The bigger question becomes what purpose do the banks truly serve if they can simply make millions a day, doing nothing?
Obviously the fact that this type of monetary policy even exists is a testament, an admission that the system is completely out of tune with reality and should no longer exist. Main Street America does not benefit from this gaming, this chicanery, no body but rentiers benefit from higher prices driven by fiat money printing.
If it was this easy to just give out $660 million a day in interest payments, what’s to say the system won’t work with giving out say $1 Billion a day or $2 Billion where does it end?
It ends with Socialism and a society led straight into the hands of a government that controls every facet of one’s life via decree, via debt servitude, via the guise of socialized welfare protection. There is zero dignity in any of that and mankind is not inclined to survive in that manner, certainly not a civilized industrial and economic power that America is and should be.
The widening income disparity and increasing welfare state, which now stands at 1 out of every 8 citizens, is a target the FOMC should be more inclined to deal with:
Real Median Household income since 2000 is up a meager 6.8% going from $66,248 to $70,784 in 22 years!
The FED has the audacity to say wage pressure is one of the main concern for inflation in 2023? Hah, what fiction…We call their bs and the data is clear, its not wage pressure that is the concern, that we are certain! What should be concerning is the concentration of wealth as the money supply has risen by 358% with all of that going into increasing asset prices which enrich just a small percentage of the population.
Sorry its asset prices that are the problem, its risk free interest that is the problem and its the Federal Reserve that is the problem. Maybe the World Economic Forum’s mouthpiece will be right after all, then again, history is on the peoples side and tyranny is always dealt with sooner or later and a whole new system comes along, until then, well maybe this clown will get his wish:
Then again a cabin in the woods being self sufficient and away from material and chaos and instead hunting, fishing and a campfire isn’t such a bad suggestion after all, except you'll have to find a way to obtain a license and approval!
Till next time.
DISCLAIMER: For educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and is not for everyone. Such investments may not be appropriate for the recipient. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. Nothing contained in this message may be construed as an express or an implied promise, guarantee or implication by, of, or from the author Michael Agne owner of Magnelibra Capital Advisors and his affiliated partnerships in any capacity. Magnelibra the CTA and its Global Futures Benchmark Program as well as any proprietary trading positions, may hold long and or short positions in the various futures and markets that Econemotions covers. We will never claim that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Although care has been taken to assure the accuracy, completeness and reliability of the information contained herein, we make no warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, reliability or usefulness of any information, product, service or process disclosed.
ALL RIGHTS RESERVED 2023