Market Dive: Why a Rate Cut Won't Help

Well, my comment below (where I said the Fed should have said "We are now Wall Street's bitch) pretty much summed up where I come in on the issue of the rate cut.

However, there are some other very important reasons why I think this is a bone-headed move.

Interest rates aren't that high right now.

To listen to the rate cutting crowd, you would think that interest rates were at godawful levels that prevented lending. Nothing could be further from the truth.

Click for larger version
(click for larger version)

Above is a chart of the effective Fed funds rate. I eyeballed a line from current rates back through the history of previous rates. Notice today's rates aren't that high, especially in a historical context. In other words, money isn't that expensive right now.

Click for larger version
(click for larger version)

Above is a chart of th constantly maturing 10-year Treasury. Note that rates have been declining for nearly 20 years.

Click for larger version
(click for larger version)

Above is a chart of AAA corporate paper. Notice the highest rates have been during this expansion corresponds to the low point of the previous cycle. Simply eyeballing the chart, it looks like AAA corporate paper is about 5.25%. That's not expensive at all.

Click for larger version
(click for larger version)

The same analysis goes for BBB paper -- it's just not that expensive to borrow right now, even for a riskier corporate credit.

So -- interest rates just aren't that high right now.

Inflation is on the horizon

Understand the importance of honest news ?

So do we.

The past year has been the most arduous of our lives. The Covid-19 pandemic continues to be catastrophic not only to our health - mental and physical - but also to the stability of millions of people. For all of us independent news organizations, it’s no exception.

We’ve covered everything thrown at us this past year and will continue to do so with your support. We’ve always understood the importance of calling out corruption, regardless of political affiliation.

We need your support in this difficult time. Every reader contribution, no matter the amount, makes a difference in allowing our newsroom to bring you the stories that matter, at a time when being informed is more important than ever. Invest with us.

Make a one-time contribution to Alternet All Access, or click here to become a subscriber. Thank you.

Click to donate by check.

DonateDonate by credit card
Donate by Paypal
{{ }}

Don't Sit on the Sidelines of History. Join Alternet All Access and Go Ad-Free. Support Honest Journalism.