December 11th and 12th
Today, December 11th, the Federal Reserve (Fed) is going to raise, keep the same, or lower interest rates, specifically the Federal Funds Rate, which influences all other interest rates.
On December the 12th, Great Britain holds elections. A win for Prime Minister Boris Johnson’s Tory party is an indicator that Brexit will actually happen, maybe, probably, I doubt it, but possibly too. Who the hell knows after 3 years?
Also December 12th, the European Central Bank (ECB) will set interest rates for the Euro like the Federal Reserve does for the dollar and thus all other currencies.
Regardless of the ECB and Fed rate decision this week, the long-term trend is lower rates with Quantitative Easing (jargon for money printing/inflation). The reason is that raising interest rates will tank the investments of most people.
“I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.” -Jerome Powell, Chairman of the Federal Reserve, then member of the Board of Governors, Oct 2012 Federal Open Market Committee Meeting.
The Fed lowers rates by purchasing government bonds (future taxes). In a paper at federalreserve.gov entitled, QE 1 vs. 2 vs. 3... A Framework for Analyzing Large Scale Asset Purchases as a Monetary Policy Tool* by Mark Gertler and Peter Karadi, the authors write in the introduction,
“Because of their dramatic impact on the size of the Fed’s balance sheet, the most visible of the new policy measures have been large asset scale purchases (LSAPs), known more generally as quantitative easing (QE).”[1]
On the Saint Louis Federal Reserve’s website, Effective Federal Funds Rate, the Fed details,
“Similarly, the Federal Reserve can increase liquidity by buying government bonds, decreasing the federal funds rate because banks have excess liquidity for trade.”[2]
Currently, the chairman of the Federal Reserve claims that they are not engaging in QE despite increasing the assets that they own by $300+ billion since September.[3]
The central banks are preparing for a recession.
“We should be happier to have a job than to have our savings protected.” -Christine Lagarde, President of the ECB and former Chairwoman of the IMF, Oct 31st, 2019.[4]
[1] https://www.federalreserve.gov/Events/conferences/2012/cbc/confpaper1/confpaper1.pdf
[2] https://fred.stlouisfed.org/series/fedfunds
[3] https://www.hamiltonmobley.com/blog/not-qe
[4] https://www.zerohedge.com/economics/lagarde-we-should-be-happier-have-job-have-savings
