Monday, April 27, 2009

Interest Rates at minus 5 Percent? (Charts)

There is an interesting article on the Financial Times pages that alludes to an internal FED analysis that the optimum interest rate right now would be -5%.
The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.
Later in the article there is a short discussion of the FEDs massive expansion of bank reserves that is designed to keep rates near zero (see Reserve Bank Credit Soaring Again (Graph))

The FED has once again started buying Treasuries to keep rates down. Is it working? Just this weekend I published two charts that showed that ten year government and thirty year government bond interest rates are creeping up. See: 10 Year Treasury Closes above 3 Percent (Graph) and 30 Year Goverment Bond Signaling Problems Ahead (Chart).

All of this is worrisome and it should have holders of stocks paying attention.

Fed study puts ideal US interest rate at -5%
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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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