I suppose it would have been out of character or asking too much to expect Janet Yellen’s Federal Reserve, at her last meeting as Fed chair, to act decisively and do something that needed to be done. Instead, playing to form, The Fed elected not to raise the federal funds rate at its January monetary policy meeting. Now we will have to wait another two months, March 20-21, the Fed’s next meeting, for the central bank to get back to normalizing interest rates.
For most of the past four years, the Yellen-led Fed has preferred to sit on its hands and let asset bubbles get bigger and bigger and leave interest rates pretty much alone, even in the face of a burgeoning economy. Instead, it has let its obsession with inflation – it’s too low, in their view, not too high – dictate monetary policy, whether that fixation has a basis in fact or not.
Since the beginning of last September, the yield on the benchmark 10-year Treasury note has soared about 75 basis points, from just over 2.00% to more than 2.75% at its most recent peak, putting it at its highest level in nearly four years. The yield on the two-year note, which is more susceptible to changes in short-term interest rate changes, is up about 90 bps in that time, to about 2.15%. Continue reading "The "Do Nothing" Fed Does It Again"