As we near our fantastic conclusion to our multiple part series on Interest rates (next post is the last) lets quickly review where we came from.
In our First Post here, we spoke of the basic yield curve and how it logically moves from lower left to higher right high to account for risk …. Recall if a buddy borrows $100 bucks and promises to pay it back tomorrow its a lot less risky than if he promises to pay it back next year… and you would rightly charge him more for the delayed time… The Basic Yield Curve!
In our Second Post here, we spoke of movement of the yield curve … basically a parallel shift upward in better economic times and a parallel shift lower during slower economic times – all other things being equal, which they of course never are…
In our Third Post here, we discussed the players and assets that might sit along the yield curve, attempting to make for a more REAL world example(s)
Today … Well, let’s get to it
Where the Federal Reserve (FOMC) Fiddles on the Yield Curve
For all practical purposes the FOMC/Federal Reserve can completely control the short end of the curve as shown on our graph… Special shout out to the 13 year old tennis player working with the new Apple Pencil (neat subject for another time)- for the updated colored graphs…. yea this is our weekend workings during rain on tennis days..haha
Post GREAT Recession of 2007-2009 the FOMC not only lowered their totally controlled short end of the yield curve – but took the unusual action of using government money to purchase assets of the longer term in order to push longer term rates down as well …
Blue is the normal yield curve – Green is the greatly lowered yield curve we have of late most recently been experiencing ….. Yea the short rate was essentially at ZERO – about what all of our checking accounts have been earning until just recently
Here is the lowering of rates graph:
It is essential that the FOMC eventually normalize the yield curve back to the original lower left upper right as keeping it unnaturally low for too long will likely lead to an overheating of the economy, not to mention over use of risk via leverage/loans …
Here is the Raising or Normalizing Graph we are currently experiencing:
Next up our conclusion, and most importantly it’s predictive behavior over the last six decades….
Have a Great “Rising Rates” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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The New Normal – All Eyes on the Fed today – Raise ? More Raise?
Today at 2:30 Eastern time, Jerome Powell, the head of the Federal Open Market Committee (FOMC) will make the decision to hold to his earlier promise of raising rates a tiny .25% and more importantly signal possible future rate increases…
The New Normal
By looking at this multi-decade chart below, it is easy to see that rates are no where near their highs…
After being low so long, the new normal may be lower – market participants seem to think/want so …
From our perch, the best outcome today would be a raise once and “check the data” statement …
We will know in a few hours- do not forget, there are skeleton crews on much of Wall Street – making for a possible sloppy response….
Have a Great “New Normal Rate” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
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Posted in FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Fed Funds Rate, Interest Rates, Jerome Powell