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Napanee, Ontario | Yes, the Fed controls the market price for interest rates, in 2 major ways.
1) Directly, through outright purchases of US gov't debt: The Fed is buying 1 out of every 2 treasury bonds traded in the market place. If that isn't controlling the market price, i don't know what it. Ask where the price woould be if they weren't doing this?
2) Setting ovnight rate to banks. Banks borrow from Fed, you borrow from the bank. The overnight rate is 0%, lowest it's ever been in history. The bank doesn't need to demand much from you to get a profit spread.. 200-300 basis points is about what we've seen historically.
When the overnight rate is 3-5% like it's been historically, consumers are looking at prime rates of around 4.5-7%. Now that we have 0%....prime rate is around what we have, 2.5-3%. Hence banks doing even better than ever.
Edited by OldMcdonald 11/21/2013 10:36
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It IS Different this Time.
