Federal Open Market Committee Leaves Fed Funds Rate at 0 to ¼ Percent Per Year Probably Until 2023, Stable US Dollar With Revaluing Yuan, Growth of US Manufacturing at 1.0 Percent in Aug 2020, US Manufacturing 7.0 Lower Than A Year Earlier In the Global Recession, with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown of Economic Activity in the COVID-19 Event, US Manufacturing Underperforming Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Continuing Recovery of US Economic Indicators, World Cyclical Slow Growth, and Government Intervention in Globalization: Part III
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
I United States Industrial Production
IIB Squeeze of Economic Activity by Carry Trades Induced
by Zero Interest Rates
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic
Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the
Debt Crisis
The statement
of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy
intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC
updated in the statement at its meeting on Dec 16, 2015 with maintenance of the
current level of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by
the statement of Sep 16, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm):
Press Release
September 16,
2020
Federal
Reserve issues FOMC statement
For release at
2:00 p.m. EDT
The Federal
Reserve is committed to using its full range of tools to support the U.S. economy
in this challenging time, thereby promoting its maximum employment and price
stability goals.
The COVID-19
pandemic is causing tremendous human and economic hardship across the United
States and around the world. Economic activity and employment have picked up in
recent months but remain well below their levels at the beginning of the year.
Weaker demand and significantly lower oil prices are holding down consumer
price inflation. Overall financial conditions have improved in recent months,
in part reflecting policy measures to support the economy and the flow of
credit to U.S. households and businesses.
The path of the
economy will depend significantly on the course of the virus. The ongoing
public health crisis will continue to weigh on economic activity, employment,
and inflation in the near term, and poses considerable risks to the economic
outlook over the medium term.
The Committee
seeks to achieve maximum employment and inflation at the rate of 2 percent over
the longer run. With inflation running persistently below this longer-run goal,
the Committee will aim to achieve inflation moderately above 2 percent for some
time so that inflation averages 2 percent over time and longer-term inflation
expectations remain well anchored at 2 percent. The Committee expects to
maintain an accommodative stance of monetary policy until these outcomes are
achieved. The Committee decided to keep the target range for the federal funds
rate at 0 to ¼ percent and expects it will be appropriate to maintain this
target range until labor market conditions have reached levels consistent with
the Committee's assessments of maximum employment and inflation has risen to 2
percent and is on track to moderately exceed 2 percent for some time. In
addition, over coming months the Federal Reserve will increase its holdings of
Treasury securities and agency mortgage-backed securities at least at the
current pace to sustain smooth market functioning and help foster accommodative
financial conditions, thereby supporting the flow of credit to households and
businesses.
In assessing
the appropriate stance of monetary policy, the Committee will continue to
monitor the implications of incoming information for the economic outlook. The
Committee would be prepared to adjust the stance of monetary policy as
appropriate if risks emerge that could impede the attainment of the Committee's
goals. The Committee's assessments will take into account a wide range of
information, including readings on public health, labor market conditions,
inflation pressures and inflation expectations, and financial and international
developments.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice
Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker;
Loretta J. Mester; and Randal K. Quarles.
Voting against
the action were Robert S. Kaplan, who expects that it will be appropriate to
maintain the current target range until the Committee is confident that the
economy has weathered recent events and is on track to achieve its maximum
employment and price stability goals as articulated in its new policy strategy
statement, but prefers that the Committee retain greater policy rate
flexibility beyond that point; and Neel Kashkari, who prefers that the
Committee indicate that it expects to maintain the current target range
until core inflation has reached 2 percent on a sustained basis.
Implementation Note issued September 16, 2020
The statement
of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy
intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC
updated in the statement at its meeting on Dec 16, 2015 with maintenance of the
current level of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by
the statement of Sep 16, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm):
Press Release
September 16,
2020
Federal Reserve
issues FOMC statement
For release at
2:00 p.m. EDT
The Federal
Reserve is committed to using its full range of tools to support the U.S.
economy in this challenging time, thereby promoting its maximum employment and
price stability goals.
The COVID-19
pandemic is causing tremendous human and economic hardship across the United
States and around the world. Economic activity and employment have picked up in
recent months but remain well below their levels at the beginning of the year.
Weaker demand and significantly lower oil prices are holding down consumer
price inflation. Overall financial conditions have improved in recent months,
in part reflecting policy measures to support the economy and the flow of
credit to U.S. households and businesses.
The path of the
economy will depend significantly on the course of the virus. The ongoing
public health crisis will continue to weigh on economic activity, employment,
and inflation in the near term, and poses considerable risks to the economic
outlook over the medium term.
The Committee
seeks to achieve maximum employment and inflation at the rate of 2 percent over
the longer run. With inflation running persistently below this longer-run goal,
the Committee will aim to achieve inflation moderately above 2 percent for some
time so that inflation averages 2 percent over time and longer-term inflation
expectations remain well anchored at 2 percent. The Committee expects to
maintain an accommodative stance of monetary policy until these outcomes are
achieved. The Committee decided to keep the target range for the federal funds
rate at 0 to ¼ percent and expects it will be appropriate to maintain this
target range until labor market conditions have reached levels consistent with
the Committee's assessments of maximum employment and inflation has risen to 2
percent and is on track to moderately exceed 2 percent for some time. In
addition, over coming months the Federal Reserve will increase its holdings of
Treasury securities and agency mortgage-backed securities at least at the
current pace to sustain smooth market functioning and help foster accommodative
financial conditions, thereby supporting the flow of credit to households and
businesses.
In assessing
the appropriate stance of monetary policy, the Committee will continue to
monitor the implications of incoming information for the economic outlook. The
Committee would be prepared to adjust the stance of monetary policy as
appropriate if risks emerge that could impede the attainment of the Committee's
goals. The Committee's assessments will take into account a wide range of
information, including readings on public health, labor market conditions,
inflation pressures and inflation expectations, and financial and international
developments.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice
Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker;
Loretta J. Mester; and Randal K. Quarles.
Voting against
the action were Robert S. Kaplan, who expects that it will be appropriate to
maintain the current target range until the Committee is confident that the
economy has weathered recent events and is on track to achieve its maximum
employment and price stability goals as articulated in its new policy strategy
statement, but prefers that the Committee retain greater policy rate
flexibility beyond that point; and Neel Kashkari, who prefers that the
Committee indicate that it expects to maintain the current target range
until core inflation has reached 2 percent on a sustained basis.
Implementation
Note issued September 16, 2020
There are
several important issues in this statement.
- Mandate. The FOMC pursues a policy of attaining its “dual
mandate:” (https://www.federalreserve.gov/aboutthefed.htm): “The Federal
Reserve System is the central bank of the United States. It performs five
general functions to promote the effective operation of the U.S. economy
and, more generally, the public interest. The Federal Reserve:
- conducts the nation’s
monetary policy to promote maximum employment, stable prices, and moderate
long-term interest rates in the U.S. economy;
- promotes the stability
of the financial system and seeks to minimize and contain systemic risks
through active monitoring and engagement in the U.S. and abroad;
- promotes the safety and soundness
of individual financial institutions and monitors their impact on the
financial system as a whole;
- fosters payment and
settlement system safety and efficiency through services to the banking
industry and the U.S. government that facilitate U.S.-dollar transactions
and payments; and
- promotes consumer
protection and community development through consumer-focused supervision
and examination, research and analysis of emerging consumer issues and
trends, community economic development activities, and the administration
of consumer laws and regulations.”
2.
Unchanged
Policy Interest Rates: “The ongoing public
health crisis will continue to weigh on economic activity, employment, and
inflation in the near term, and poses considerable risks to the economic outlook
over the medium term. The Committee seeks to achieve maximum employment and
inflation at the rate of 2 percent over the longer run. With inflation running
persistently below this longer-run goal, the Committee will aim to achieve
inflation moderately above 2 percent for some time so that inflation averages 2
percent over time and longer-term inflation expectations remain well anchored
at 2 percent. The Committee expects to maintain an accommodative stance of
monetary policy until these outcomes are achieved. The Committee decided to
keep the target range for the federal funds rate at 0 to 1/4 percent and expects
it will be appropriate to maintain this target range until labor market
conditions have reached levels consistent with the Committee's assessments of
maximum employment and inflation has risen to 2 percent and is on track to
moderately exceed 2 percent for some time.”
- New Quantitative Easing and Other Measures: “In addition, over
coming months the Federal Reserve will increase its holdings of Treasury
securities and agency mortgage-backed securities at least at the current
pace to sustain smooth market functioning and help foster accommodative
financial conditions, thereby supporting the flow of credit to households
and businesses.”
- Forecast Dependent Policy. In the Opening Remarks to the Press Conference on Jan 30, 2019, the
Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today,
the FOMC decided that the cumulative effects of those developments over
the last several months warrant a patient, wait-and-see approach regarding
future policy changes. In particular, our statement today says, “In light
of global economic and financial developments and muted inflation
pressures, the Committee will be patient as it determines what future
adjustments to the target range for the federal funds rate may be appropriate.”
This change was not driven by a major shift in the baseline outlook for
the economy. Like many forecasters, we still see
“sustained expansion of economic activity, strong labor market conditions,
and inflation near … 2 percent” as the likeliest case. But the
cross-currents I mentioned suggest the risk of a less-favorable outlook.
In addition, the case for raising
rates has weakened somewhat. The traditional case for rate increases
is to protect the economy from risks that arise when rates are too low for
too long, particularly the risk of too-high inflation. Over the past few
months, that risk appears to have diminished. Inflation readings have been
muted, and the recent drop in oil prices is likely to Page 3 of 5 push
headline inflation lower still in coming months. Further, as we noted in
our post-meeting statement, while survey-based measures of inflation
expectations have been stable, financial market measures of inflation
compensation have moved lower. Similarly, the risk of financial imbalances
appears to have receded, as a number of indicators that showed elevated
levels of financial risk appetite last fall have moved closer to
historical norms. In this environment, we believe we can best support the
economy by being patient in evaluating the outlook before making any
future adjustment to policy.” In
the opening remarks to the Mar 20, 2019, the Chairman of the Federal
Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In
discussing the Committee’s projections, it is useful to note what those
projections are, as well as what they are not. The SEP includes
participants’ individual projections of the most likely economic scenario
along with their views of the appropriate path of the federal funds rate
in that scenario. Views about the most likely scenario form one input into
our policy discussions. We also discuss other plausible scenarios, including
the risk of more worrisome outcomes. These and other scenarios and many
other considerations go into policy, but are not reflected in projections
of the most likely case. Thus, we always emphasize that the interest rate
projections in the SEP are not a Committee decision. They are not a
Committee plan. As Chair Yellen noted some years ago, the FOMC statement,
rather than the dot plot, is the device that the Committee uses to express
its opinions about the likely path of rates.”
The Federal Open Market Committee (FOMC)
decided to lower the target range of the federal funds rate by 0.50 percent to
1.0 to 1¼ percent on Mar 3, 2020 in a decision outside the calendar meetings (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm):
What is truly
important is the fixing of the overnight fed funds at 0 to ¼ percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm): “The Committee
decided to keep the target range for the federal funds rate at 0 to ¼ percent
and expects it will be appropriate to maintain this target range until labor
market conditions have reached levels consistent with the Committee's
assessments of maximum employment and inflation has risen to 2 percent and is
on track to moderately exceed 2 percent for some time. In addition, over coming
months the Federal Reserve will increase its holdings of Treasury securities
and agency mortgage-backed securities at least at the current pace to sustain
smooth market functioning and help foster accommodative financial conditions,
thereby supporting the flow of credit to households and businesses. In
assessing the appropriate stance of monetary policy, the Committee will
continue to monitor the implications of incoming information for the economic
outlook. The Committee would be prepared to adjust the stance of monetary
policy as appropriate if risks emerge that could impede the attainment of the
Committee's goals. The Committee's assessments will take into account a wide
range of information, including readings on public health, labor market
conditions, inflation pressures and inflation expectations, and financial and
international developments.” (emphasis added).” There are multiple new policy measures, including purchases of Treasury
securities and mortgage-backed securities for the balance sheet of the Fed (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200610a.htm): “To support the flow of credit to households and businesses, over
coming months the Federal Reserve will increase its holdings of Treasury
securities and agency residential and commercial mortgage-backed securities at
least at the current pace to sustain smooth market functioning, thereby
fostering effective transmission of monetary policy to broader financial
conditions. In addition, the Open Market Desk will continue to offer
large-scale overnight and term repurchase agreement operations. The Committee
will closely monitor developments and is prepared to adjust its plans as
appropriate.”In the Opening Remarks to the Press
Conference on Oct 30, 2019, the Chairman of the Federal Reserve Board, Jerome
H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191030.pdf): “We see the current stance of
monetary policy as likely to remain appropriate as long as incoming information
about the economy remains broadly consistent with our outlook of moderate economic
growth, a strong labor market, and inflation near our symmetric 2 percent
objective. We believe monetary policy is in a good place to achieve these
outcomes. Looking ahead, we will be monitoring the effects of our policy
actions, along with other information bearing on the outlook, as we assess the
appropriate path of the target range for the fed funds rate. Of course, if
developments emerge that cause a material reassessment of our outlook, we would
respond accordingly. Policy is not on a preset course.” In the Opening Remarks to the Press Conference on Jan 30, 2019, the
Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that
the cumulative effects of those developments over the last several months
warrant a patient, wait-and-see approach regarding future policy changes. In
particular, our statement today says, “In light of global economic and
financial developments and muted inflation pressures, the Committee will be
patient as it determines what future adjustments to the target range for the
federal funds rate may be appropriate.” This change was not driven by a major
shift in the baseline outlook for the economy. Like many forecasters, we
still see “sustained expansion of economic activity, strong labor market
conditions, and inflation near … 2 percent” as the likeliest case. But the
cross-currents I mentioned suggest the risk of a less-favorable outlook. In
addition, the case for raising rates has
weakened somewhat. The traditional case for rate increases is to protect
the economy from risks that arise when rates are too low for too long,
particularly the risk of too-high inflation. Over the past few months, that
risk appears to have diminished. Inflation readings have been muted, and the
recent drop in oil prices is likely to Page 3 of 5 push headline inflation
lower still in coming months. Further, as we noted in our post-meeting
statement, while survey-based measures of inflation expectations have been
stable, financial market measures of inflation compensation have moved lower.
Similarly, the risk of financial imbalances appears to have receded, as a
number of indicators that showed elevated levels of financial risk appetite
last fall have moved closer to historical norms. In this environment, we
believe we can best support the economy by being patient in evaluating the
outlook before making any future adjustment to policy.” The FOMC is initiating the “normalization” or
reduction of the balance sheet of securities held outright for monetary policy
(https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm) with
significant changes (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf). In the opening remarks to the Mar 20, 2019, the Chairman of the Federal
Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s
projections, it is useful to note what those projections are, as well as what
they are not. The SEP includes participants’ individual projections of the most
likely economic scenario along with their views of the appropriate path of the
federal funds rate in that scenario. Views about the most likely scenario form
one input into our policy discussions. We also discuss other plausible
scenarios, including the risk of more worrisome outcomes. These and other
scenarios and many other considerations go into policy, but are not reflected in
projections of the most likely case. Thus, we always emphasize that the
interest rate projections in the SEP are not a Committee decision. They are not
a Committee plan. As Chair Yellen noted some years ago, the FOMC statement,
rather than the dot plot, is the device that the Committee uses to express its
opinions about the likely path of rates.”
In the Introductory Statement on Jul 25,
2019, in Frankfurt am Main, the President of the European Central Bank, Mario
Draghi, stated (https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html): “Based on our regular economic and monetary analyses, we decided
to keep the key ECB interest rates unchanged.
We expect them to remain at their present or lower levels at least through the
first half of 2020, and in any case for as long as necessary to ensure the
continued sustained convergence of inflation to our aim over the medium term.
We intend to continue reinvesting, in full, the principal
payments from maturing securities purchased under the asset purchase programme
for an extended period of time past the date when we start raising the key ECB
interest rates, and in any case for as long as necessary to maintain favourable
liquidity conditions and an ample degree of monetary accommodation.” At its meeting on September 12, 2019, the Governing
Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html):
(1) decrease the deposit facility by 10 basis points to minus 0.50 percent
while maintaining at 0.00 the main refinancing operations rate and at 0.25
percent the marginal lending facility rate; (2) restart net purchases of
securities at the monthly rate of €20 billion beginning on Nov 1, 2019; (3)
reinvest principal payments from maturing securities; (4) adapt long-term refinancing
operations to maintain “favorable bank lending conditions;” and (5) exempt part
of the “negative deposit facility rate” on bank excess liquidity.
The Federal
Open Market Committee (FOMC) decided to lower the target range of the federal
funds rate by 0.50 percent to 1.0 to 1¼ percent on Mar 3, 2020 in a decision
outside the calendar meetings (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm):
March 03, 2020
Federal Reserve issues FOMC statement
For release at
10:00 a.m. EST
The
fundamentals of the U.S. economy remain strong. However, the coronavirus poses
evolving risks to economic activity. In light of these risks and in support of
achieving its maximum employment and price stability goals, the Federal Open
Market Committee decided today to lower the target range for the federal funds
rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely
monitoring developments and their implications for the economic outlook and
will use its tools and act as appropriate to support the economy.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice
Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker;
Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
For media
inquiries, call 202-452-2955.
Implementation
Note issued March 3, 2020
In his classic
restatement of the Keynesian demand function in terms of “liquidity preference
as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies
the risks of low interest rates in terms of portfolio allocation (Tobin 1958,
86):
“The assumption
that investors expect on balance no change in the rate of interest has been
adopted for the theoretical reasons explained in section 2.6 rather than for
reasons of realism. Clearly investors do form expectations of changes in
interest rates and differ from each other in their expectations. For the purposes
of dynamic theory and of analysis of specific market situations, the theories
of sections 2 and 3 are complementary rather than competitive. The formal
apparatus of section 3 will serve just as well for a non-zero expected capital
gain or loss as for a zero expected value of g. Stickiness of interest rate
expectations would mean that the expected value of g is a function of the rate
of interest r, going down when r goes down and rising when r goes up. In
addition to the rotation of the opportunity locus due to a change in r itself,
there would be a further rotation in the same direction due to the accompanying
change in the expected capital gain or loss. At low interest rates
expectation of capital loss may push the opportunity locus into the negative
quadrant, so that the optimal position is clearly no consols, all cash. At
the other extreme, expectation of capital gain at high interest rates would
increase sharply the slope of the opportunity locus and the frequency of no
cash, all consols positions, like that of Figure 3.3. The stickier the
investor's expectations, the more sensitive his demand for cash will be to
changes in the rate of interest (emphasis added).”
Tobin (1969)
provides more elegant, complete analysis of portfolio allocation in a general
equilibrium model. The major point is equally clear in a portfolio consisting
of only cash balances and a perpetuity or consol. Let g be the capital
gain, r the rate of interest on the consol and re the
expected rate of interest. The rates are expressed as proportions. The price of
the consol is the inverse of the interest rate, (1+re). Thus,
g = [(r/re) – 1]. The critical analysis of
Tobin is that at extremely low interest rates there is only expectation of
interest rate increases, that is, dre>0, such that there
is expectation of capital losses on the consol, dg<0. Investors move
into positions combining only cash and no consols. Valuations of risk
financial assets would collapse in reversal of long positions in carry trades
with short exposures in a flight to cash. There is no exit from a central bank
created liquidity trap without risks of financial crash and another global
recession. The net worth of the economy depends on interest rates. In theory,
“income is generally defined as the amount a consumer unit could consume (or
believe that it could) while maintaining its wealth intact” (Friedman 1957,
10). Income, Y, is a flow that is obtained by applying a rate of return,
r, to a stock of wealth, W, or Y = rW (Friedman
1957). According to a subsequent statement: “The basic idea is simply that
individuals live for many years and that therefore the appropriate constraint
for consumption is the long-run expected yield from wealth r*W.
This yield was named permanent income: Y* = r*W” (Darby
1974, 229), where * denotes permanent. The simplified relation of income and
wealth can be restated as:
W = Y/r
(1)
Equation (1) shows that as r goes to
zero, r→0, W grows without bound, W→∞. Unconventional
monetary policy lowers interest rates to increase the present value of cash
flows derived from projects of firms, creating the impression of long-term
increase in net worth. An attempt to reverse unconventional monetary policy
necessarily causes increases in interest rates, creating the opposite perception
of declining net worth. As r→∞, W = Y/r →0. There
is no exit from unconventional monetary policy without increasing interest
rates with resulting pain of financial crisis and adverse effects on
production, investment and employment.
IIIA Financial Risks. Financial turbulence,
attaining unusual magnitude in recent months, characterized the expansion from
the global recession since IIIQ2009. Table III-1, updated with every comment in
this blog, provides beginning values on Sep 11 and daily values throughout the
week ending on Sep 18, 2020, of various financial assets. Section VI Valuation
of Risk Financial Assets provides a set of more complete values. All data are
for New York time at the close of business. The first column provides the value
on Fri Sep 11, 2020 and the percentage change in that prior week below the
label of the financial risk asset. For example, the first column “Fri Sep 11,
2020,” first row “USD/EUR 1.1848 -0.1% -0.3%,” provides the information that the US
dollar (USD) depreciated 0.1 percent to USD 1.1848/EUR in the week ending on Sep
11 relative to the exchange rate on Sep 4 and depreciated 0.3 percent relative
to Thu Sep 10. The first five asset rows provide five key exchange rates versus
the dollar and the percentage cumulative appreciation (positive change or no
sign) or depreciation (negative change or negative sign). Positive changes
constitute appreciation of the relevant exchange rate and negative changes
depreciation. Financial turbulence has been dominated by reactions to the new
program for Greece (see section IB in https://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html), modifications and new
approach adopted in the Euro Summit of Oct 26 (European Commission 2011Oct26SS,
2011Oct26MRES), doubts on the larger countries in the euro zone with sovereign
risks such as Spain and Italy but expanding into possibly France and Germany,
the growth standstill recession and long-term unsustainable government debt in
the US, worldwide deceleration of economic growth and continuing waves of
inflation. An important current shock is that resulting from the agreement by
European leaders at their meeting on Dec 9 (European Council 2911Dec9), which
is analyzed in IIIC Appendix on Fiscal Compact. European leaders reached a new
agreement on Jan 30 (https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/127631.pdf) and another agreement
on Jun 29, 2012 (https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131388.pdf). There are complex
economic, financial and political effects of the withdrawal of the UK from the
European Union or BREXIT after the referendum on Jun 23, 2016 (https://next.ft.com/eu-referendum for extensive coverage by
the Financial Times). The most
important source of financial turbulence is shifting toward fluctuating
interest rates in the global recession, with output in the US reaching a
high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. The dollar/euro rate is
quoted as number of US dollars USD per euro EUR, USD 1.1848/EUR in the first
row, first column in the block for currencies in Table III-1 for Sep 11, depreciating
to USD 1.1863/EUR on Mon Sep 14, 2020, or by 0.1 percent. The dollar depreciated
because more dollars, $1.1863, were required on Mon Sep 14 to buy one euro than
$1.1848 on Fri Sep 11. Table III-1 defines a country’s exchange rate as number
of units of domestic currency per unit of foreign currency. USD/EUR would be
the definition of the exchange rate of the US and the inverse [1/(USD/EUR)] is
the definition in this convention of the rate of exchange of the euro zone,
EUR/USD. A convention used throughout this blog is required to maintain
consistency in characterizing movements of the exchange rate such as in Table
III-1 as appreciation and depreciation. The first row for each of the
currencies shows the market closing exchange rate at New York time, such as USD
1.1848/EUR on Sep 11. The second row provides the cumulative percentage
appreciation or depreciation of the exchange rate from the rate on the last business
day of the prior week, in this case Sep 11, to the last business day of the
current week, in this case Sep 18, such as appreciation of 0.1 percent to USD
1.1842/EUR by Sep 18. The third row provides the percentage change from the
prior business day to the current business day. For example, the USD appreciated
(denoted by positive sign) by 0.1 percent from the rate of USD 1.1848/EUR on
Fri Sep 11 to the rate of USD 1.1842 on Sep 18 {[(1.1842/1.1848) - 1]100 = -0.1%}.
The dollar appreciated (denoted by positive sign) by 0.1 percent from the rate
of USD 1.1850 on Thu Sep 17 to USD 1.1842/EUR on Fri Sep 18 {[(1.1842/1.1850)
-1]100 = -0.1%}. Other factors constant, increasing risk aversion causes
appreciation of the dollar relative to the euro, with rising uncertainty on
European and global sovereign risks increasing dollar-denominated assets with
sales of risk financial investments. On Aug 27, 2020, the Federal Open
Market Committee changed its Longer-Run Goals and Monetary Policy Strategy,
including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues.
There is mixed
performance in equity indexes with several indexes in Table III-1 oscillating sharply
in the week ending on Sep 18, 2020, after wide swings caused by reallocations
of investment portfolios worldwide. The global recession, with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event, is having strong effects
in the economy and financial markets. Stagnating revenues, corporate cash hoarding,
effects of currency oscillations on corporate earnings and declining investment
are causing reevaluation of discounted net earnings with deteriorating views on
the world economy and United States fiscal sustainability but investors have
been driving indexes higher. There are complex economic, financial and
political effects of the withdrawal of the UK from the European Union or BREXIT
after the referendum on Jun 23, 2016 (https://next.ft.com/eu-referendum for extensive
coverage by the Financial Times).
Nuclear conflicts in the Korean Peninsula and global geopolitics are also
affecting financial markets. An immediate factor is the path of raising
interest rates by the Fed, becoming a path of decreasing interest rates with
increasing balance sheet. On Aug 27, 2020, the Federal Open
Market Committee changed its Longer-Run Goals and Monetary Policy Strategy,
including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. DJIA decreased 0.9 percent on Sep 18, changing
0.0 percent in the week. Germany’s DAX decreased 0.7 percent on Sep 18 and decreased
0.7 percent in the week. Dow Global decreased 0.6 percent on Sep 18 and increased
0.1 percent in the week. Japan’s Nikkei Average increased 0.2 percent on Sep 18
and decreased 0.2 percent in the week of Sep 18, as the yen continues
oscillating and the stock market gains in expectations of success of fiscal
stimulus by a new administration and monetary stimulus by a new board of the
Bank of Japan. Shanghai Composite that decreased 1.0 percent
on Mar 8 and decreased 1.7 percent in the week of Mar 8, falling below 2000 at
1974.38 on Mar 12, 2014 but closing at 3338.09 on Sep 18, 2020 for increase of 2.1
percent and increasing 2.4 percent in the week. The Shanghai Composite
increased 69.1 percent from March 12, 2014 to Sep 18, 2020. There is
deceleration with oscillations of the world economy that could affect corporate
revenue and equity valuations, causing fluctuations in equity markets with
increases during favorable risk appetite. The global hunt for yield induced by
central bank policy rates of near zero percent motivates wide portfolio
reshufflings among classes of risk financial assets.
Commodities were mixed in the week of Sep 18,
2020. Table III-1 shows that WTI increased 10.1 percent in the week of Sep 18
while Brent increased 8.3 percent in the week with turmoil in oil producing
regions but oscillating action by OPEC now in negotiations with Russia. Gold increased
0.6 percent on Sep 18 and increased 0.7 percent in the week of Sep 18.
Table III-I,
Weekly Financial Risk Aug 14 to Sep 18, 2020
|
Fri 11 |
Mon 14 |
Tue 15 |
Wed 16 |
Thu 17 |
Fri 18 |
|
USD/EUR 1.1848 -0.1% -0.3% |
1.1863 -0.1% -0.1% |
1.1847 0.0% 0.1% |
1.1817 0.3% 0.3% |
1.1850 0.0% -0.3% |
1.1842 0.1% 0.1% |
|
JPY/ USD 106.16 0.1% 0.0% |
105.73 0.4% 0.4% |
105.44 0.7% 0.3% |
104.95 1.1% 0.5% |
104.74 1.3% 0.2% |
104.57 1.5% 0.2% |
|
CHF/ USD 0.9090 0.5% 0.2% |
0.9084 0.1% 0.1% |
0.9082 0.1% 0.0% |
0.9093 0.0% -0.1% |
0.9085 0.1% 0.1% |
0.9116 -0.3% -0.3% |
|
CHF/EUR 1.0768 0.4% -0.1% |
1.0778 -0.1% -0.1% |
1.0762 0.1% 0.1% |
1.0750 0.2% 0.1% |
1.0765 0.0% -0.1% |
1.0794 -0.2% -0.3% |
|
USD/ AUD 0.7283 1.3731 0.0% 0.3% |
0.7287 1.3723 0.1% 0.1% |
0.7301 1.3697 0.2% 0.2% |
0.7306 1.3687 0.3% 0.1% |
0.7312 1.3676 0.4% 0.1% |
0.7291 1.3716 0.1% -0.3% |
|
10Y Note 0.672 |
0.666 |
0.676 |
0.685 |
0.689 |
0.689 |
|
2Y Note 0.133 |
0.141 |
0.137 |
0.145 |
0.129 |
0.137 |
|
German Bond 2Y -0.69
10Y-0.48 |
2Y -0.70 10Y
-0.48 |
2Y -0.69 10Y
-0.48 |
2Y -0.69 10Y -0.48 |
2Y -0.69 10Y
-0.49 |
2Y -0.69
10Y-0.48 |
|
DJIA 27665.64 -1.7% 0.5% |
27993.33 1.2% 1.2% |
27995.60 1.2% 0.0% |
28032.38 1.3% 0.1% |
27901.98 0.9% -0.5% |
27657.42 0.0% -0.9% |
|
Dow Global 3041.17 -0.5% 0.2% |
3074.22 1.1% 1.1% |
3076.45 1.2% 0.1% |
3083.63 1.4% 0.2% |
3061.87 0.7% -0.7% |
3044.78 0.1% -0.6% |
|
DJ Asia
Pacific NA |
NA |
NA |
NA |
NA |
NA |
|
Nikkei 23406.49 0.9% 0.7% |
23559.30 0.7% 0.7% |
23454.89 0.2% -0.4% |
23475.53 0.3% 0.1% |
23319.37 -0.4% -0.7% |
23360.30 -0.2% 0.2% |
|
Shanghai 3260.35 -2.8% 0.8% |
3278.81 0.6% 0.6% |
3295.68 1.1% 0.5% |
3283.92 0.7% -0.4% |
3270.43 0.3% -0.4% |
3338.09 2.4% 2.1% |
|
DAX 13202.84 2.8% 0.0% |
13193.66 -0.1% -0.1% |
13217.67 0.1% 0.2% |
13255.37 0.4% 0.3% |
13208.12 0.0% -0.4% |
13116.25 -0.7% -0.7% |
|
BOVESPA 98363.22 -2.8% -0.5% |
100274.52 1.9% 1.9% |
100297.91 2.0% 0.0% |
99675.68 1.3% -0.6% |
100097.83 1.8% 0.4% |
98289.71 -0.1% -1.8% |
|
DJ UBS Comm. NA |
NA |
NA |
NA |
NA |
NA |
|
WTI $/B 37.33 -6.1% 0.1% |
37.26 -0.2% -0.2% |
38.28 2.5% 2.7% |
40.16 7.6% 4.9% |
40.97 9.8% 2.0% |
41.11 10.1% 0.3% |
|
Brent $/B 39.83 -6.6% -0.6% |
39.61 -0.6% -0.6% |
40.53 1.8% 2.3% |
42.22 6.0% 4.2% |
43.30 8.7% 2.6% |
43.15 8.3% -0.3% |
|
Gold 1947.9 0.7% -0.8% |
1963.7 0.8% 0.8% |
1966.2 0.9% 0.1% |
1970.5 1.2% 0.2% |
1949.9 0.1% -1.0% |
1962.1 0.7% 0.6% |
Note: USD: US dollar; JPY: Japanese Yen; CHF: Swiss
Franc; AUD:
Australian dollar; Comm.: commodities; OZ: ounce
Sources: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
https://www.investing.com/rates-bonds/world-government-bonds
Chart
III-1C provides the yields of the ten-year, two-year, one-month Treasury
Constant Maturity, and the overnight Fed funds rate from Jan 2, 1962 to Sep 17,
2020. The final data point is for Sep 17, 2020 with the Fed funds rate at 0.09
percent, the one-month Treasury constant
maturity at 0.09 percent, the
two-year at 0.13 percent and the ten-year at 0.69 percent. The causes of the financial crisis and global recession were
interest rate and housing subsidies and affordability policies that encouraged
high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial
Regulation after the Global Recession (2009a), 157-66, Regulation of
Banks and Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html
Gradual unwinding of 1 percent fed funds rates from
Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points
from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime
mortgages and adjustable-rate mortgages linked to the overnight fed funds rate.
The zero-interest rate has penalized liquidity and increased risks by inducing
carry trades from zero interest rates to speculative positions in risk
financial assets. There is no exit from zero interest rates without provoking
another financial crash. The yields of Treasury securities inverted on
Mar 22, 2019 with the ten-year yield at 2.44 percent below those of 2.49
percent for one-month, 2.48 percent for two months, 2.46 percent for three
months, 2.48 percent for six months and 2.45 percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).
There was some flattening on Mar 29, 2019, with the 10-year at 2.41 percent,
the 1-month at 2.43 percent, the 3-month at 2.40 percent, the 6-month at 2.44
percent and the 1-year at 2.40 percent. There was further mild steepening on
Apr 12, 2019, with the 10-year at 2.568 percent, the 1-month at 2.419 percent,
the 3-month at 2.440 percent, the 6-month at 2.463 percent and the 1-year at
2.453 percent. The final segment after 2001 shows the effects of unconventional
monetary policy of extremely low, below inflation fed funds rate in lowering yields.
This was an important cause of the global recession and financial crisis
inducing as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive
risk taking, a boom and bust in the housing market, and eventually the
financial crisis and recession.” Monetary policy deviated from the Taylor Rule
(Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB,
1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An explanation is
in the research of Adrian, Estrella and Shin (2018, 21-22): “Our findings
suggest that the monetary tightening of 2004-2006 period ultimately did achieve
a slowdown in real activity not because of its impact on the level of longer
term interest rates, but rather because of its impact on the slope of the yield
curve. In fact, while the level of the 10-year yield only increased 38 basis
points between June 2004 and 2006, the term spread declined 325 basis points
(from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major difference in the current cycle is the balance
sheet of the Fed with purchases used to lower interest rates in specific
segments and maturities such as mortgage-backed securities and longer terms.
Chart III-1C, Yield US Ten-Year, Two-Year and One-Month
Treasury Constant Maturity Yields and Overnight Fed Funds Rate, Jan 3, 1962-Sep
17, 2020
Note: US Recessions in shaded areas
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/releases/h15/
Table III-2
provides an update of the consolidated financial statement of the Eurosystem.
The balance sheet has swollen with the long-term refinancing operations
(LTROs). Line 5 “Lending to Euro Area Credit Institutions Related to Monetary
Policy” increased from €546,747 million on Dec 31, 2010, to €879,130 million on
Dec 28, 2011 and €1,596,711 million on Sep 11, 2020, with increase of loans
from €1,596,613 million in the prior week of Aug 28, 2020. The sum of line 5
and line 7 (“Securities of Euro Area Residents Denominated in Euro”) has
reached €5,186,015 million in the statement of Sep 11, 2020, with increase from
€5,164,538 million in the prior week of Sep 4. There is high credit risk in
these transactions with capital of only €108,922 million as analyzed by
Cochrane (2012Aug31).
Table III-2, Consolidated
Financial Statement of the Eurosystem, Million EUR
|
Dec 31, 2010 |
Dec 28, 2011 |
Sep 11, 2020 |
|
|
1 Gold and other
Receivables |
367,402 |
419,822 |
548,768 |
|
2 Claims on Non-Euro Area Residents
Denominated in Foreign Currency |
223,995 |
236,826 |
359,318 |
|
3 Claims on Euro Area
Residents Denominated in Foreign Currency |
26,941 |
95,355 |
25,528 |
|
4 Claims on Non-Euro Area
Residents Denominated in Euro |
22,592 |
25,982 |
12,011 |
|
5 Lending to Euro Area
Credit Institutions Related to Monetary Policy Operations Denominated in Euro |
546,747 |
879,130 |
1,596,711 09/04/20: 1,596,613 08/28/20 1,595,890 08/21/20: 1,595,907 08/14/20 1,595,581 08/07/20: 1,595,531 07/31/20: 1,590,036 07/24/20 1,590,573 |
|
6 Other Claims on Euro Area
Credit Institutions Denominated in Euro |
45,654 |
94,989 |
35,739 |
|
7 Securities of Euro Area
Residents Denominated in Euro |
457,427 |
610,629 |
3,589,304 09/04/20: 3,567,925 08/28/20: 3,554,309 08/21/20: 3,537,676 08/14/20: 3,518,137 08/07/20: 3,499,332 07/31/20: 3,477,545 07/24/20: 3,462,835 |
|
8 General Government Debt
Denominated in Euro |
34,954 |
33,928 |
22,804 |
|
9 Other Assets |
278,719 |
336,574 |
284,429 |
|
TOTAL ASSETS |
2,004, 432 |
2,733,235 |
6,474,612 |
|
Memo Items |
|||
|
Sum of 5 and 7 |
1,004,174 |
1,489,759 |
5,186,015 09/04/20: 5,164,538 08/28/20: 5,150,199 08/21/20: 5,133,583 08/14/20 5,113,718 08/07/20: 5,094,863 07/31/20: 5,067,581 07/24/20: 5,053,408 07/17/20: 5,025,664 |
|
Capital and Reserves |
78,143 |
81,481 |
108,922 |
Source: European Central Bank
http://www.ecb.int/press/pr/wfs/2011/html/fs110105.en.html
http://www.ecb.int/press/pr/wfs/2011/html/fs111228.en.html
https://www.ecb.europa.eu/press/pr/wfs/2020/html/ecb.fst200915.en.html
The carry trade from zero interest rates to
leveraged positions in risk financial assets had proved strongest for commodity
exposures but US equities have regained leadership. On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. The DJIA has increased 185.5 percent since the
trough of the sovereign debt crisis in Europe on Jul 16, 2010 to Sep 18, 2020;
S&P 500 has gained 224.6 percent and DAX 131.3 percent. Before the current
round of risk aversion, almost all assets in the column “∆% Trough to 09/18/20”
in Table VI-4 had double digit gains relative to the trough around Jul 2, 2010
followed by negative performance but now some valuations of equity indexes show
varying behavior. China’s Shanghai Composite is 40.1 percent above the
trough. Japan’s Nikkei Average is 164.7
percent above the trough. Dow Global is 78.8 percent above the trough. STOXX 50
of 50 blue-chip European equities (https://www.stoxx.com/index-details?symbol=sx5E) is 29.7
percent above the trough. NYSE Financial Index is 64.5 percent above the
trough. DAX index of German equities (http://www.bloomberg.com/quote/DAX:IND) is 131.3
percent above the trough. Japan’s Nikkei Average is 164.7 percent above the
trough on Aug 31, 2010 and 105.0 percent above the peak on Apr 5, 2010. The
Nikkei Average closed at 23,360.30 on Aug 18, 2020 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 127.8
percent higher than 10,254.43 on Mar 11, 2011, on
the date of the TΕhoku or Great East Japan Earthquake/tsunami. Global risk
aversion erased the earlier gains of the Nikkei. The dollar appreciated 0.7
percent relative to the euro. The dollar devalued before the new bout of
sovereign risk issues in Europe. The column “∆% week to 09/18/20” in Table VI-4
shows increase of 2.4 percent for China’s Shanghai Composite. The Nikkei decreased
0.2 percent. NYSE Financial decreased 0.4 percent in the week. Dow Global increased
0.1 percent in the week of Sep 18, 2020. The DJIA changed 0.0 percent and
S&P 500 decreased 0.6 percent. DAX of Germany decreased 0.7 percent. STOXX
50 decreased 0.3 percent. The USD appreciated 0.1 percent. There are still high
uncertainties on European sovereign risks and banking soundness, US and world
growth slowdown and China’s growth tradeoffs. Sovereign problems in the
“periphery” of Europe and fears of slower growth in Asia and the US cause risk
aversion with trading caution instead of more aggressive risk exposures. There
is a fundamental change in Table VI-4 from the relatively upward trend with
oscillations since the sovereign risk event of Apr-Jul 2010. Performance is
best assessed in the column “∆% Peak to 09/18/20” that provides the percentage
change from the peak in Apr 2010 before the sovereign risk event to Sep 18,
2020. Most risk financial assets had gained not only relative to the trough as
shown in column “∆% Trough to 09/18/20” but also relative to the peak in column
“∆% Peak to 09/18/20.” There are now several equity indexes above the peak in
Table VI-4: DJIA 146.8 percent, S&P 500 172.7 percent, DAX 107.1 percent,
Dow Global 45.9 percent, NYSE Financial Index (https://www.nyse.com/quote/index/NYK.ID) 31.0 percent
and Nikkei Average 105.0 percent. STOXX 50 is 9.8 percent above the peak.
Shanghai Composite is 5.5 percent above the peak. The Shanghai Composite
increased 69.1 percent from March 12, 2014, to Sep 18, 2020. The US dollar
strengthened 21.7 percent relative to the peak. The factors of risk aversion
have adversely affected the performance of risk financial assets. The
performance relative to the peak in Apr 2010 is more important than the
performance relative to the trough around early Jul 2010 because improvement
could signal that conditions have returned to normal levels before European
sovereign doubts in Apr 2010.
Table VI-4,
Stock Indexes, Commodities, Dollar and Ten-Year Treasury
|
|
Peak |
Trough |
∆% to
Trough |
∆% Peak to
09/18/ /20 |
∆% Week
09/18/20 |
∆% Trough
to 09/18/ 20 |
|
DJIA |
4/26/ |
7/2/10 |
-13.6 |
146.8 |
0.0 |
185.5 |
|
S&P
500 |
4/23/ |
7/20/ |
-16.0 |
172.7 |
-0.6 |
224.6 |
|
NYSE
Finance |
4/15/ |
7/2/10 |
-20.3 |
31.0 |
-0.4 |
64.5 |
|
Dow Global |
4/15/ |
7/2/10 |
-18.4 |
45.9 |
0.1 |
78.8 |
|
Asia
Pacific |
4/15/ |
7/2/10 |
-12.5 |
NA |
NA |
NA |
|
Japan
Nikkei Aver. |
4/05/ |
8/31/ |
-22.5 |
105.0 |
-0.2 |
164.7 |
|
China
Shang. |
4/15/ |
7/02 |
-24.7 |
5.5 |
2.4 |
40.1 |
|
STOXX 50 |
4/15/10 |
7/2/10 |
-15.3 |
9.8 |
-0.3 |
29.7 |
|
DAX |
4/26/ |
5/25/ |
-10.5 |
107.1 |
-0.7 |
131.3 |
|
Dollar |
11/25 2009 |
6/7 |
21.2 |
21.7 |
0.1 |
0.7 |
|
DJ UBS
Comm. |
1/6/ |
7/2/10 |
-14.5 |
NA |
NA |
NA |
|
10-Year T
Note |
4/5/ |
4/6/10 |
3.986 |
2.784 |
2.658 |
0.689 |
T: trough;
Dollar: positive sign appreciation relative to euro (less dollars paid per
euro), negative sign depreciation relative to euro (more dollars paid per euro)
Source: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
Bernanke (2010WP) and Yellen (2011AS)
reveal the emphasis of monetary policy on the impact of the rise of stock
market valuations in stimulating consumption by wealth effects on household
confidence. Table VI-5 shows a gain by Apr 29, 2011 in the DJIA of 14.3 percent
and of the S&P 500 of 12.5 percent since Apr 26, 2010, around the time when
sovereign risk issues in Europe began to be acknowledged in financial risk asset
valuations. The last row of Table VI-5 for Sep 18, 2020 shows that the S&P
500 is now 173.9 percent above the Apr 26, 2010 level and the DJIA is 146.8
percent above the level on Apr 26, 2010. Multiple rounds of risk aversion
eroded earlier gains, showing that risk aversion can destroy market value even
with zero interest rates. Relaxed risk aversion has contributed to recovery of
valuations. Much the same as zero interest rates and quantitative easing have
not had any effects in recovering economic activity while distorting
financial markets and resources.
Table VI-5, Percentage
Changes of DJIA and S&P 500 in Selected Dates
|
|
∆% DJIA from prior
date |
∆% DJIA from |
∆% S&P 500 from prior
date |
∆% S&P 500 from |
|
Apr 26, 2010 |
|
|
|
|
|
May 06/10 |
-6.1 |
-6.1 |
-6.9 |
-6.9 |
|
May 26/10 |
-5.2 |
-10.9 |
-5.4 |
-11.9 |
|
Jun 08/10 |
-1.2 |
-11.3 |
2.1 |
-12.4 |
|
Jul 02/10 |
-2.6 |
-13.6 |
-3.8 |
-15.7 |
|
Jul 31, 2020 |
-0.2 |
135.9 |
1.7 |
169.9 |
|
Aug 07, 2020 |
3.8 |
144.8 |
2.5 |
176.5 |
|
Aug 14, 2020 |
1.8 |
149.3 |
0.6 |
178.3 |
|
Aug 21, 2020 |
0.0 |
149.3 |
0.7 |
180.3 |
|
Aug 28, 2020 |
2.6 |
155.7 |
3.3 |
189.4 |
|
Sep 04, 2020 |
-1.8 |
151.1 |
-2.3 |
182.7 |
|
Sep 11, 2020 |
-1.7 |
146.9 |
-2.5 |
175.6 |
|
Sep 18, 2020 |
0.0 |
146.8 |
-0.6 |
173.9 |
Source:
http://professional.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3014
http://professional.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000
Table VI-7,
updated with every blog comment, provides in the second column the yield at the
close of market of the 10-year Treasury note on the date in the first column.
The price in the third column is calculated with the coupon of 2.625 percent of
the 10-year note current at the time of the second round of quantitative easing
after Nov 3, 2010 and the final column “∆% 11/04/10” calculates the percentage
change of the price on the date relative to that of 101.2573 at the close of
market on Nov 4, 2010, one day after the decision on quantitative easing by the
Fed on Nov 3, 2010. Prices with new coupons such as 2.0 percent in recent
auctions (http://www.treasurydirect.gov/RI/OFAuctions?form=extended&cusip=912828RR3) are not
comparable to prices in Table VI-7. The highest yield in the decade was 5.510
percent on May 1, 2001 that would result in a loss of principal of 22.9 percent
relative to the price on Nov 4. Monetary policy has created a “duration trap”
of bond prices. Duration is the percentage change in bond price resulting from
a percentage change in yield or what economists call the yield elasticity of
bond price. Duration is higher the lower the bond coupon and yield, all other
things constant. This means that the price loss in a yield rise from low
coupons and yields is much higher than with high coupons and yields.
Intuitively, the higher coupon payments offset part of the price loss.
Prices/yields of Treasury securities were affected by the combination of Fed
purchases for its program of quantitative easing and by the flight to
dollar-denominated assets because of geopolitical risks in the Middle East,
subsequently by the tragic Great East Japan Earthquake and Tsunami and now
again by the sovereign risk doubts in Europe and the growth recession in the US
and the world. The yield of 0.689 percent at the close of market on Fri Sep 18,
2020 would be equivalent to price of 118.6771 in a hypothetical bond maturing
in 10 years with coupon of 2.625 percent for price increase of 17.2 percent
relative to the price on Nov 4, 2010, one day after the decision on the second
program of quantitative easing, as shown in the last row of Table VI-7. The
price loss between Sep 7, 2012 and Sep 14, 2012 would have been 1.7 percent in
just five trading days. The price loss between Jun 1, 2012 and Jun 8, 2012
would have been 1.6 percent, in just a week, and much higher with leverage of
10:1 as typical in Treasury positions. The price loss between Mar 9, 2012 and
Mar 16, 2012 is 2.3 percent but much higher when using common leverage of 10:1.
The price loss between Dec 28, 2012 and Jan 4, 2013 would have been 1.7
percent. These losses defy annualizing. If inflation accelerates, yields of
Treasury securities may rise sharply. Yields are not observed without special
yield-lowering effects such as the flight into dollars caused by the events in
the Middle East, continuing purchases of Treasury securities by the Fed, the
tragic TΕhoku or Great East Earthquake and Tsunami of Mar 11, 2011 affecting
Japan, recurring fears on European sovereign credit issues and worldwide risk
aversion in the week of Sep 30 caused by “let’s twist again” monetary policy.
There is a difficult climb from the record federal deficit of 9.8 percent of
GDP in 2009 and cumulative deficit of $5090 billion in four consecutive years
of deficits exceeding one trillion dollars from 2009 to 2012, which is the
worst fiscal performance since World War II (https://cmpassocregulationblog.blogspot.com/2018/10/global-contraction-of-valuations-of.html and earlier https://cmpassocregulationblog.blogspot.com/2017/04/mediocre-cyclical-economic-growth-with.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/07/unresolved-us-balance-of-payments.html and earlier http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-reducing.html and earlier http://cmpassocregulationblog.blogspot.com/2015/09/monetary-policy-designed-on-measurable.html and earlier http://cmpassocregulationblog.blogspot.com/2015/06/fluctuating-financial-asset-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html and earlier at
http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html and earlier
Section IB at http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html). There is no
subsequent jump of debt in US peacetime history as the one from 39.4 percent of
GDP in 2008 to 65.8 percent of GDP in 2011, 70.3 percent in 2012, 72.2 percent
in 2013, 73.7 percent in 2014, 72.5 percent in 2015, 76.4 percent in 2016, 76.1
percent in 2017 and 77.8 percent in 2018 (https://www.cbo.gov/about/products/budget-economic-data#6) (https://cmpassocregulationblog.blogspot.com/2018/10/global-contraction-of-valuations-of.html and
earlier https://cmpassocregulationblog.blogspot.com/2017/04/mediocre-cyclical-economic-growth-with.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/07/unresolved-us-balance-of-payments.html and earlier http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-reducing.html and earlier (http://cmpassocregulationblog.blogspot.com/2016/01/weakening-equities-and-dollar.html and earlier http://cmpassocregulationblog.blogspot.com/2015/06/fluctuating-financial-asset-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-world-inflation-waves.html
and earlier http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). The US is
facing an unsustainable debt/GDP path (https://cmpassocregulationblog.blogspot.com/2018/10/global-contraction-of-valuations-of.html and earlier
and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html http://cmpassocregulationblog.blogspot.com/2016/07/unresolved-us-balance-of-payments.html and earlier http://cmpassocregulationblog.blogspot.com/2016/01/weakening-equities-and-dollar.html and earlier http://cmpassocregulationblog.blogspot.com/2015/09/monetary-policy-designed-on-measurable.html and earlier http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html and earlier (http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-world-inflation-waves.html and earlier http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html and earlier at
http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html).
The Chair of
the Federal Reserve Board, Jerome H. Powell, at the 61st Annual
Meeting on the National Association for Business Economics, on Oct 28, 2019, in
Denver, Colorado, stated (https://www.federalreserve.gov/newsevents/speech/powell20191008a.htm): “Reserve
balances are one among several items on the liability side of the Federal
Reserve's balance sheet, and demand for these liabilities—notably, currency in
circulation—grows over time. Hence, increasing the supply of reserves or even
maintaining a given level over time requires us to increase the size of our
balance sheet. As we indicated in our March statement on balance sheet
normalization, at some point, we will begin increasing our securities holdings
to maintain an appropriate level of reserves.18 That time is now upon us.
I want to emphasize that growth of our balance sheet for reserve
management purposes should in no way be confused with the large-scale asset purchase
programs that we deployed after the financial crisis. Neither the recent
technical issues nor the purchases of Treasury bills we are contemplating to
resolve them should materially affect the stance of monetary policy, to which I
now turn.” On October 25, 2017, at the beginning of the FOMC programmed
reduction of the balance sheet, Total Assets of Federal Reserve Banks stood at
$4,461,117 million. Total Assets increased $2,603,358 million from $4,461,117 on Oct 25, 2017 to
$7,064,475 on Sep 16, 2020. Total Assets of
Federal Reserve Banks increased from $3,981,420 million on Feb
20, 2019 to $7,064,475 million on Sep 16,
2020, by $3,083,055 million or 77.4
percent. The policy of reducing the fed funds policy rate requires increasing
the balance sheet. The line “Securities Held Outright” increased from
$4,019,823 million on Oct 25, 2017 to $6,414,387 on Sep 16, 2020 or $2,394,564
million. Securities Held Outright increased from $3,617,939 million on Jul 1,
2019 to $6,414,387 on Sep 16, 2020 by $2,796,448 million or 77.3 percent. The
portfolio of long-term securities (“securities held outright”) for monetary
policy consists primarily of $6049 billion, or $6.05 trillion, of which $3,756
billion Treasury nominal notes and bonds, $286 billion of notes and bonds
inflation-indexed, $2 billion Federal agency debt securities and $2005 billion
mortgage-backed securities ($2,005,035 million). Reserve balances deposited
with Federal Reserve Banks reached $2869 billion ($2,869,309 million) or $2.9
trillion (https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). The rounded
values of $1649 billion of reserves deposited at Federal Reserve Banks and
mortgage-backed securities are identical on Dec 19, 2018, by pure coincidence.
There is no simple exit of this trap created by the highest monetary policy
accommodation in US history together with the highest deficits and debt in
percent of GDP since World War II. Risk aversion from various sources,
discussed in section III World Financial Turbulence, has been affecting
financial markets for several months. The risk is that in a reversal of
exposures because of increasing risk aversion that has been typical in this
cyclical expansion of the economy yields of Treasury securities may back up
sharply.
Table VI-7, Yield, Price and
Percentage Change to November 4, 2010 of Ten-Year Treasury Note
|
Date |
Yield |
Price |
∆% 11/04/10 |
|
05/01/01 |
5.510 |
78.0582 |
-22.9 |
|
06/10/03 |
3.112 |
95.8452 |
-5.3 |
|
06/12/07 |
5.297 |
79.4747 |
-21.5 |
|
12/19/08 |
2.213 |
104.4981 |
3.2 |
|
12/31/08 |
2.240 |
103.4295 |
2.1 |
|
03/19/09 |
2.605 |
100.1748 |
-1.1 |
|
06/09/09 |
3.862 |
89.8257 |
-11.3 |
|
10/07/09 |
3.182 |
95.2643 |
-5.9 |
|
11/27/09 |
3.197 |
95.1403 |
-6.0 |
|
12/31/09 |
3.835 |
90.0347 |
-11.1 |
|
02/09/10 |
3.646 |
91.5239 |
-9.6 |
|
03/04/10 |
3.605 |
91.8384 |
-9.3 |
|
04/05/10 |
3.986 |
88.8726 |
-12.2 |
|
08/31/10 |
2.473 |
101.3338 |
0.08 |
|
10/07/10 |
2.385 |
102.1224 |
0.8 |
|
10/28/10 |
2.658 |
99.7119 |
-1.5 |
|
11/04/10 |
2.481 |
101.2573 |
- |
|
11/15/10 |
2.964 |
97.0867 |
-4.1 |
|
11/26/10 |
2.869 |
97.8932 |
-3.3 |
|
12/03/10 |
3.007 |
96.7241 |
-4.5 |
|
12/10/10 |
3.324 |
94.0982 |
-7.1 |
|
12/15/10 |
3.517 |
92.5427 |
-8.6 |
|
12/17/10 |
3.338 |
93.9842 |
-7.2 |
|
12/23/10 |
3.397 |
93.5051 |
-7.7 |
|
12/31/10 |
3.228 |
94.3923 |
-6.7 |
|
01/07/11 |
3.322 |
94.1146 |
-7.1 |
|
01/14/11 |
3.323 |
94.1064 |
-7.1 |
|
01/21/11 |
3.414 |
93.4687 |
-7.7 |
|
01/28/11 |
3.323 |
94.1064 |
-7.1 |
|
02/04/11 |
3.640 |
91.750 |
-9.4 |
|
02/11/11 |
3.643 |
91.5319 |
-9.6 |
|
02/18/11 |
3.582 |
92.0157 |
-9.1 |
|
02/25/11 |
3.414 |
93.3676 |
-7.8 |
|
03/04/11 |
3.494 |
92.7235 |
-8.4 |
|
03/11/11 |
3.401 |
93.4727 |
-7.7 |
|
03/18/11 |
3.273 |
94.5115 |
-6.7 |
|
03/25/11 |
3.435 |
93.1935 |
-7.9 |
|
04/01/11 |
3.445 |
93.1129 |
-8.0 |
|
04/08/11 |
3.576 |
92.0635 |
-9.1 |
|
04/15/11 |
3.411 |
93.3874 |
-7.8 |
|
04/22/11 |
3.402 |
93.4646 |
-7.7 |
|
04/29/11 |
3.290 |
94.3759 |
-6.8 |
|
05/06/11 |
3.147 |
95.5542 |
-5.6 |
|
05/13/11 |
3.173 |
95.3387 |
-5.8 |
|
05/20/11 |
3.146 |
95.5625 |
-5.6 |
|
05/27/11 |
3.068 |
96.2089 |
-4.9 |
|
06/03/11 |
2.990 |
96.8672 |
-4.3 |
|
06/10/11 |
2.973 |
97.0106 |
-4.2 |
|
06/17/11 |
2.937 |
97.3134 |
-3.9 |
|
06/24/11 |
2.872 |
97.8662 |
-3.3 |
|
07/01/11 |
3.186 |
95.2281 |
-5.9 |
|
07/08/11 |
3.022 |
96.5957 |
-4.6 |
|
07/15/11 |
2.905 |
97.5851 |
-3.6 |
|
07/22/11 |
2.964 |
97.0847 |
-4.1 |
|
07/29/11 |
2.795 |
98.5258 |
-2.7 |
|
08/05/11 |
2.566 |
100.5175 |
-0.7 |
|
08/12/11 |
2.249 |
103.3504 |
2.1 |
|
08/19/11 |
2.066 |
105.270 |
3.7 |
|
08/26/11 |
2.202 |
103.7781 |
2.5 |
|
09/02/11 |
1.992 |
105.7137 |
4.4 |
|
09/09/11 |
1.918 |
106.4055 |
5.1 |
|
09/16/11 |
2.053 |
101.5434 |
0.3 |
|
09/23/11 |
1.826 |
107.2727 |
5.9 |
|
09/30/11 |
1.912 |
106.4602 |
5.1 |
|
10/07/11 |
2.078 |
104.9161 |
3.6 |
|
10/14/11 |
2.251 |
103.3323 |
2.0 |
|
10/21/11 |
2.220 |
103.6141 |
2.3 |
|
10/28/11 |
2.326 |
102.6540 |
1.4 |
|
11/04/11 |
2.066 |
105.0270 |
3.7 |
|
11/11/11 |
2.057 |
105.1103 |
3.8 |
|
11/18/11 |
2.003 |
105.6113 |
4.3 |
|
11/25/11 |
1.964 |
105.9749 |
4.7 |
|
12/02/11 |
2.042 |
105.2492 |
3.9 |
|
12/09/11 |
2.065 |
105.0363 |
3.7 |
|
12/16/11 |
1.847 |
107.0741 |
5.7 |
|
12/23/11 |
2.027 |
105.3883 |
4.1 |
|
12/30/11 |
1.871 |
106.8476 |
5.5 |
|
01/06/12 |
1.957 |
106.0403 |
4.7 |
|
01/13/12 |
1.869 |
106.8664 |
5.5 |
|
01/20/12 |
2.026 |
105.3976 |
4.1 |
|
01/27/12 |
1.893 |
106.6404 |
5.3 |
|
02/03/12 |
1.923 |
106.3586 |
5.0 |
|
02/10/12 |
1.974 |
105.8815 |
4.6 |
|
02/17/12 |
2.000 |
105.6392 |
4.3 |
|
02/24/12 |
1.977 |
105.8535 |
4.5 |
|
03/02/12 |
1.977 |
105.8535 |
4.5 |
|
03/09/12 |
2.031 |
105.3512 |
4.0 |
|
03/16/12 |
2.294 |
102.9428 |
1.7 |
|
03/23/12 |
2.234 |
103.4867 |
2.2 |
|
03/30/12 |
2.214 |
103.6687 |
2.4 |
|
04/06/12 |
2.058 |
105.1010 |
3.8 |
|
04/13/12 |
1.987 |
105.7603 |
4.4 |
|
04/20/12 |
1.959 |
106.0216 |
4.7 |
|
04/27/12 |
1.931 |
106.2836 |
5.0 |
|
05/04/12 |
1.876 |
106.8004 |
5.5 |
|
05/11/12 |
1.845 |
107.0930 |
5.8 |
|
05/18/12 |
1.714 |
108.3393 |
7.0 |
|
05/25/12 |
1.738 |
108.1098 |
6.8 |
|
06/01/12 |
1.454 |
110.8618 |
9.5 |
|
06/08/12 |
1.635 |
109.0989 |
7.7 |
|
06/15/12 |
1.584 |
109.5924 |
8.2 |
|
06/22/12 |
1.676 |
108.7039 |
7.4 |
|
06/29/12 |
1.648 |
108.9734 |
7.6 |
|
07/06/12 |
1.548 |
109.9423 |
8.6 |
|
07/13/12 |
1.49 |
110.5086 |
9.1 |
|
07/20/12 |
1.459 |
110.8127 |
9.4 |
|
07/27/12 |
1.544 |
109.9812 |
8.6 |
|
08/03/12 |
1.569 |
109.7380 |
8.4 |
|
08/10/12 |
1.658 |
108.8771 |
7.5 |
|
08/17/12 |
1.814 |
107.3864 |
6.1 |
|
08/24/12 |
1.684 |
108.6270 |
7.3 |
|
08/31/12 |
1.543 |
109.9910 |
8.6 |
|
9/7/12 |
1.668 |
108.7808 |
7.4 |
|
9/14/12 |
1.863 |
106.9230 |
5.6 |
|
9/21/12 |
1.753 |
107.9666 |
6.6 |
|
9/28/12 |
1.631 |
109.1375 |
7.8 |
|
10/05/12 |
1.737 |
108.1193 |
6.8 |
|
10/12/12 |
1.663 |
108.8290 |
7.5 |
|
10/19/12 |
1.766 |
107.8426 |
6.5 |
|
10/26/12 |
1.748 |
108.0143 |
6.7 |
|
11/02/12 |
1.715 |
108.3297 |
7.0 |
|
11/09/12 |
1.614 |
109.3018 |
7.9 |
|
11/16/12 |
1.584 |
109.5924 |
8.2 |
|
11/23/12 |
1.691 |
108.5598 |
7.2 |
|
11/30/12 |
1.612 |
109.3211 |
7.9 |
|
12/7/12 |
1.625 |
109.1954 |
7.8 |
|
12/14/12 |
1.704 |
108.4351 |
7.1 |
|
12/21/12 |
1.770 |
107.8045 |
6.5 |
|
12/28/12 |
1.699 |
108.4831 |
7.1 |
|
1/4/13 |
1.898 |
106.5934 |
5.3 |
|
1/11/13 |
1.862 |
106.9324 |
5.6 |
|
1/18/13 |
1.840 |
107.1403 |
5.8 |
|
1/25/13 |
1.947 |
106.1338 |
4.8 |
|
2/1/13 |
2.024 |
105.4161 |
4.1 |
|
2/8/13 |
1.949 |
106.1151 |
4.8 |
|
2/15/13 |
2.007 |
105.5741 |
4.3 |
|
2/22/13 |
1.967 |
105.9469 |
4.6 |
|
3/1/13 |
1.842 |
107.1213 |
5.8 |
|
3/8/13 |
2.056 |
105.1195 |
3.8 |
|
3/15/13 |
1.992 |
105.7137 |
4.4 |
|
03/22/13 |
1.931 |
106.2836 |
5.0 |
|
03/29/13 |
1.847 |
107.0741 |
5.7 |
|
04/05/13 |
1.706 |
108.4160 |
7.1 |
|
04/12/13 |
1.719 |
108.2914 |
6.9 |
|
04/19/13 |
1.702 |
108.4543 |
7.1 |
|
04/26/13 |
1.663 |
108.8290 |
7.5 |
|
05/3/13 |
1.742 |
108.2436 |
6.9 |
|
05/10/13 |
1.896 |
106.6122 |
5.3 |
|
05/17/13 |
1.952 |
106.0870 |
4.8 |
|
05/24/13 |
2.009 |
105.5555 |
4.2 |
|
05/31/13 |
2.132 |
104.5015 |
3.2 |
|
06/07/13 |
2.174 |
104.0338 |
2.7 |
|
06/14/13 |
2.125 |
104.4831 |
3.2 |
|
06/21/13 |
2.542 |
100.7288 |
-0.5 |
|
06/28/13 |
2.486 |
101.2240 |
0.0 |
|
07/5/13 |
2.734 |
99.0519 |
-2.2 |
|
07/12/13 |
2.585 |
100.3505 |
-0.9 |
|
07/19/13 |
2.480 |
101.2772 |
0.0 |
|
07/26/13 |
2.565 |
100.5263 |
-0.7 |
|
08/2/13 |
2.597 |
100.2452 |
-1.0 |
|
8/9/13 |
2.579 |
100.4032 |
-0.8 |
|
8/16/13 |
2.829 |
98.2339 |
-3.0 |
|
8/23/13 |
2.818 |
98.3283 |
-2.9 |
|
8/30/13 |
2.784 |
98.6205 |
-2.6 |
|
9/6/13 |
2.941 |
97.2795 |
-3.9 |
|
9/13/13 |
2.890 |
97.7128 |
-3.5 |
|
9/20/13 |
2.734 |
99.0519 |
-2.2 |
|
9/27/13 |
2.626 |
99.9913 |
-1.3 |
|
10/4/13 |
2.645 |
99.8253 |
-1.4 |
|
10/11/13 |
2.688 |
99.4508 |
-1.8 |
|
10/18/13 |
2.588 |
100.3242 |
-0.9 |
|
10/25/13 |
2.507 |
101.0380 |
-0.2 |
|
11/1/13 |
2.622 |
100.0262 |
-1.2 |
|
11/8/13 |
2.750 |
98.9136 |
-2.3 |
|
11/15/13 |
2.704 |
99.3118 |
-1.9 |
|
11/22/13 |
2.746 |
98.9482 |
-2.3 |
|
11/29/13 |
2.743 |
98.9741 |
-2.3 |
|
12/6/13 |
2.858 |
97.9858 |
-3.2 |
|
12/13/13 |
2.865 |
97.9260 |
-3.3 |
|
12/20/13 |
2.891 |
97.7043 |
-3.5 |
|
12/27/13 |
3.004 |
96.7472 |
-4.5 |
|
1/3/2014 |
2.999 |
96.7893 |
-4.4 |
|
1/10/14 |
2.858 |
97.9858 |
-3.2 |
|
1/17/14 |
2.818 |
98.3283 |
-2.9 |
|
1/24/14 |
2.720 |
99.1731 |
-2.1 |
|
1/31/14 |
2.645 |
99.8253 |
-1.4 |
|
2/7/14 |
2.681 |
99.5116 |
-1.7 |
|
2/14/14 |
2.743 |
98.9741 |
-2.3 |
|
2/21/14 |
2.730 |
99.0865 |
-2.1 |
|
2/28/14 |
2.655 |
99.7380 |
-1.5 |
|
3/7/14 |
2.792 |
98.5516 |
-2.7 |
|
3/14/14 |
2.654 |
99.7468 |
-1.5 |
|
3/21/14 |
2.743 |
98.9741 |
-2.3 |
|
3/28/14 |
2.721 |
99.1645 |
-2.1 |
|
4/4/14 |
2.724 |
99.1385 |
-2.1 |
|
4/11/14 |
2.628 |
99.9738 |
-1.3 |
|
4/18/14 |
2.724 |
99.1385 |
-2.1 |
|
4/25/14 |
2.668 |
99.6248 |
-1.6 |
|
5/2/14 |
2.583 |
100.3681 |
-0.9 |
|
5/9/14 |
2.624 |
100.0088 |
-1.2 |
|
5/16/14 |
2.520 |
100.9320 |
-0.3 |
|
5/23/14 |
2.532 |
100.8171 |
-0.4 |
|
5/30/14 |
2.473 |
101.3394 |
0.1 |
|
6/6/2014 |
2.598 |
100.2364 |
-1.0 |
|
6/13/14 |
2.605 |
100.1751 |
-1.1 |
|
6/20/14 |
2.609 |
00.1400 |
-1.1 |
|
6/27/14 |
2.536 |
100.7818 |
-0.05 |
|
7/4/14 |
2.641 |
99.8602 |
-1.4 |
|
7/11/14 |
2.516 |
100.9584 |
-0.3 |
|
7/18/14 |
2.484 |
101.2417 |
0.0 |
|
7/25/14 |
2.464 |
101.4193 |
0.2 |
|
8/1/14 |
2.497 |
101.1265 |
-0.1 |
|
8/8/14 |
2.420 |
101.8111 |
0.5 |
|
8/15/14 |
2.341 |
102.5190 |
1.2 |
|
8/22/14 |
2.399 |
101.9988 |
0.7 |
|
8/29/14 |
2.342 |
102.5100 |
1.2 |
|
9/5/14 |
2.457 |
101.4815 |
0.2 |
|
9/12/14 |
2.606 |
10.1663 |
-1.1 |
|
9/19/14 |
2.576 |
100.4296 |
-0.8 |
|
9/26/14 |
2.527 |
100.8612 |
-0.4 |
|
10/03/14 |
2.437 |
101.6595 |
0.4 |
|
10/10/14 |
2.292 |
102.9609 |
1.7 |
|
10/17/14 |
2.197 |
103.8237 |
2.5 |
|
10/24/14 |
2.263 |
103.2234 |
1.9 |
|
10/31/14 |
2.332 |
102.6000 |
1.3 |
|
11/07/14 |
2.302 |
102.8705 |
1.6 |
|
11/14/14 |
2.319 |
102.7171 |
1.4 |
|
11/21/14 |
2.307 |
102.8254 |
1.5 |
|
11/28/14 |
2.165 |
104.1162 |
2.8 |
|
12/5/14 |
2.306 |
102.8344 |
1.6 |
|
12/12/14 |
2.086 |
104.8423 |
3.5 |
|
12/19/14 |
2.185 |
103.9333 |
2.6 |
|
12/26/14 |
2.248 |
103.3595 |
2.1 |
|
01/02/15 |
2.126 |
104.4739 |
3.2 |
|
01/09/15 |
1.973 |
105.8909 |
4.6 |
|
01/16/15 |
1.826 |
107.2727 |
5.9 |
|
01/23/15 |
1.804 |
107.4813 |
6.1 |
|
01/30/15 |
1.683 |
108.6367 |
7.3 |
|
02/06/15 |
1.941 |
106.1899 |
4.9 |
|
02/13/15 |
2.043 |
105.2399 |
3.9 |
|
02/20/15 |
2.119 |
104.5383 |
3.2 |
|
02/27/15 |
2.016 |
105.4905 |
4.2 |
|
03/06/15 |
2.238 |
103.4503 |
2.2 |
|
03/13/15 |
2.103 |
104.6856 |
3.4 |
|
03/20/15 |
1.927 |
106.3211 |
5.0 |
|
03/27/15 |
1.951 |
106.0964 |
4.8 |
|
04/02/15 |
1.911 |
106.4712 |
5.1 |
|
04/10/15 |
1.950 |
106.1057 |
4.8 |
|
04/17/15 |
1.864 |
106.9136 |
5.6 |
|
04/24/15 |
1.917 |
106.4149 |
5.1 |
|
05/01/15 |
2.118 |
104.5475 |
3.2 |
|
05/08/15 |
2.153 |
104.2261 |
2.9 |
|
05/15/15 |
2.136 |
104.3821 |
3.1 |
|
05/22/15 |
2.211 |
103.6961 |
2.4 |
|
05/29/15 |
2.092 |
104.7869 |
3.5 |
|
06/05/15 |
2.400 |
101.9898 |
0.7 |
|
06/12/15 |
2.388 |
102.0972 |
0.8 |
|
06/19/15 |
2.270 |
103.1599 |
1.9 |
|
06/26/15 |
2.473 |
101.3394 |
0.1 |
|
07/03/15 |
2.383 |
102.1420 |
0.9 |
|
07/10/15 |
2.414 |
101.8647 |
0.6 |
|
07/17/15 |
2.346 |
102.4740 |
1.2 |
|
07/24/15 |
2.268 |
103.1781 |
1.9 |
|
07/31/15 |
2.207 |
103.7325 |
2.4 |
|
08/07/15 |
2.164 |
104.1254 |
2.8 |
|
08/14/15 |
2.196 |
103.8328 |
2.5 |
|
08/21/15 |
2.052 |
105.1565 |
3.9 |
|
08/28/15 |
2.182 |
103.9607 |
2.7 |
|
09/04/15 |
2.127 |
104.4647 |
3.2 |
|
09/11/15 |
2.181 |
103.9698 |
2.7 |
|
09/18/15 |
2.131 |
104.4280 |
3.1 |
|
09/25/15 |
2.168 |
104.0887 |
2.8 |
|
10/02/15 |
1.988 |
105.7510 |
4.4 |
|
10/09/15 |
2.096 |
104.7501 |
3.4 |
|
10/16/15 |
2.024 |
105.4161 |
4.1 |
|
10/23/15 |
2.083 |
104.8700 |
3.6 |
|
10/30/15 |
2.150 |
104.2536 |
3.0 |
|
11/06/15 |
2.332 |
102.6000 |
1.3 |
|
11/13/15 |
2.278 |
103.0875 |
1.8 |
|
11/20/15 |
2.260 |
103.2506 |
2.0 |
|
11/27/15 |
2.223 |
103.5868 |
2.3 |
|
12/04/15 |
2.276 |
103.1056 |
1.8 |
|
12/11/15 |
2.134 |
104.4004 |
3.1 |
|
12/18/15 |
2.197 |
103.8237 |
2.5 |
|
12/25/15 |
2.242 |
103.4140 |
2.1 |
|
01/01/16 |
2.269 |
103.1690 |
1.9 |
|
01/08/16 |
2.135 |
104.3913 |
3.1 |
|
01/15/16 |
2.036 |
105.3048 |
4.0 |
|
01/22/15 |
2.048 |
105.1936 |
3.9 |
|
01/29/16 |
1.923 |
106.3586 |
5.0 |
|
02/05/16 |
1.848 |
107.0646 |
5.7 |
|
02/12/16 |
1.744 |
108.0525 |
6.7 |
|
02/19/16 |
1.748 |
108.0143 |
6.7 |
|
02/26/16 |
1.766 |
107.8426 |
6.5 |
|
03/04/16 |
1.884 |
106.7251 |
5.4 |
|
03/11/16 |
1.977 |
105.8535 |
4.5 |
|
03/18/16 |
1.871 |
106.8476 |
5.5 |
|
03/25/16 |
1.900 |
106.5746 |
5.3 |
|
04/01/16 |
1.795 |
107.5667 |
6.2 |
|
04/08/16 |
1.722 |
108.2627 |
6.9 |
|
04/15/16 |
1.752 |
107.9761 |
6.6 |
|
04/22/16 |
1.886 |
106.7063 |
5.4 |
|
04/29/16 |
1.820 |
107.3296 |
6.0 |
|
05/06/16 |
1.780 |
107.7094 |
6.4 |
|
05/13/16 |
1.706 |
108.4160 |
7.1 |
|
05/20/16 |
1.849 |
107.0552 |
5.7 |
|
05/27/16 |
1.851 |
107.0363 |
5.7 |
|
06/03/16 |
1.704 |
108.4351 |
7.1 |
|
06/10/16 |
1.638 |
109.0699 |
7.7 |
|
06/17/16 |
1.618 |
109.2631 |
7.9 |
|
06/24/16 |
1.575 |
109.6797 |
8.3 |
|
07/01/16 |
1.443 |
110.9700 |
9.6 |
|
07/08/16 |
1.366 |
111.7306 |
10.3 |
|
07/15/16 |
1.595 |
109.4857 |
8.1 |
|
07/22/16 |
1.567 |
109.7575 |
8.4 |
|
07/29/16 |
1.458 |
110.8225 |
9.4 |
|
08/05/16 |
1.583 |
109.6021 |
8.2 |
|
08/12/16 |
1.514 |
110.2739 |
8.9 |
|
08/19/16 |
1.580 |
109.6312 |
8.3 |
|
08/26/16 |
1.635 |
109.0989 |
7.7 |
|
09/02/16 |
1.597 |
109.4663 |
8.1 |
|
09/09/16 |
1.675 |
108.7135 |
7.4 |
|
09/16/16 |
1.699 |
108.4831 |
7.1 |
|
09/23/16 |
1.614 |
109.3018 |
7.9 |
|
09/30/16 |
1.602 |
109.4179 |
8.1 |
|
10/07/16 |
1.732 |
108.1671 |
6.8 |
|
10/14/16 |
1.791 |
107.6048 |
6.3 |
|
10/21/16 |
1.738 |
108.1098 |
6.8 |
|
10/28/16 |
1.843 |
107.1119 |
5.8 |
|
11/04/16 |
1.784 |
107.6173 |
6.3 |
|
11/11/16 |
2.152 |
104.2353 |
2.9 |
|
11/18/16 |
2.340 |
102.5280 |
1.3 |
|
11/25/16 |
2.358 |
102.3662 |
1.1 |
|
12/01/16 |
2.389 |
102.0883 |
0.8 |
|
12/09/16 |
2.466 |
101.4015 |
0.1 |
|
12/16/16 |
2.597 |
100.2452 |
-1.0 |
|
12/23/16 |
2.542 |
100.7289 |
-0.5 |
|
12/30/16 |
2.447 |
101.5705 |
0.3 |
|
01/06/17 |
2.416 |
101.8469 |
0.6 |
|
01/13/17 |
2.381 |
102.1599 |
0.9 |
|
01/20/17 |
2.466 |
101.4015 |
0.1 |
|
01/27/17 |
2.479 |
101.2861 |
0.0 |
|
02/03/17 |
2.488 |
101.2063 |
-0.1 |
|
02/10/17 |
2.408 |
101.9183 |
0.7 |
|
02/17/17 |
2.425 |
101.7665 |
0.5 |
|
02/24/17 |
2.314 |
102.7622 |
1.5 |
|
03/03/17 |
2.492 |
101.1708 |
-0.1 |
|
03/10/17 |
2.584 |
100.3593 |
-0.9 |
|
03/17/17 |
2.502 |
101.0823 |
-0.2 |
|
03/24/17 |
2.399 |
101.9888 |
0.7 |
|
03/31/17 |
2.396 |
102.0256 |
0.8 |
|
04/07/17 |
2.373 |
102.2316 |
1.0 |
|
04/14/17 |
2.234 |
103.4867 |
2.2 |
|
04/21/17 |
2.233 |
103.4958 |
2.2 |
|
04/28/17 |
2.286 |
103.0151 |
1.7 |
|
05/05/17 |
2.352 |
102.4201 |
1.1 |
|
05/12/17 |
2.333 |
102.5910 |
1.3 |
|
05/19/17 |
2.243 |
103.4049 |
2.1 |
|
05/26/17 |
2.247 |
103.3686 |
2.1 |
|
06/02/17 |
2.161 |
104.1528 |
2.9 |
|
06/09/17 |
2.199 |
103.8055 |
2.5 |
|
06/16/17 |
2.154 |
104.2170 |
2.9 |
|
06/23/17 |
2.144 |
104.3087 |
3.0 |
|
06/30/17 |
2.304 |
102.8525 |
1.6 |
|
07/07/17 |
2.393 |
102.0524 |
0.8 |
|
07/14/17 |
2.323 |
102.6811 |
1.4 |
|
07/21/17 |
2.233 |
103.4985 |
2.2 |
|
07/28/17 |
2.288 |
102.9970 |
1.7 |
|
08/04/17 |
2.268 |
103.1781 |
1.9 |
|
08/11/17 |
2.189 |
103.8968 |
2.6 |
|
08/18/17 |
2.196 |
103.8328 |
2.5 |
|
08/25/17 |
2.171 |
104.0613 |
2.8 |
|
09/01/17 |
2.157 |
101.2573 |
2.9 |
|
09/08/17 |
2.061 |
105.0733 |
3.8 |
|
09/15/17 |
2.201 |
103.7872 |
2.5 |
|
09/22/17 |
2.263 |
103.2234 |
1.9 |
|
09/29/17 |
2.327 |
102.6450 |
1.4 |
|
10/06/17 |
2.368 |
102.2765 |
1.0 |
|
10/13/17 |
2.278 |
103.0875 |
1.8 |
|
10/20/17 |
2.379 |
102.1778 |
0.9 |
|
10/27/17 |
2.423 |
101.7844 |
0.5 |
|
11/03/17 |
2.343 |
102.5010 |
1.2 |
|
11/10/17 |
2.404 |
101.9541 |
0.7 |
|
11/17/17 |
2.354 |
102.4021 |
1.1 |
|
11/24/17 |
3.343 |
102.5010 |
1.2 |
|
12/01/17 |
2.361 |
102.3393 |
1.1 |
|
12/08/17 |
2.383 |
102.1420 |
0.9 |
|
12/15/17 |
2.355 |
102.3932 |
1.1 |
|
12/22/17 |
2.487 |
101.2151 |
0.0 |
|
12/29/17 |
2.411 |
101.8915 |
0.6 |
|
01/05/18 |
2.475 |
101.3216 |
0.1 |
|
01/12/18 |
2.550 |
100.6583 |
-0.6 |
|
01/19/18 |
2.638 |
99.8864 |
-1.4 |
|
01/26/18 |
2.661 |
99.6857 |
-1.6 |
|
02/02/18 |
2.848 |
98.0713 |
-3.1 |
|
02/09/18 |
2.830 |
98.2254 |
-3.0 |
|
02/16/18 |
2.877 |
97.8236 |
-3.4 |
|
02/23/18 |
2.870 |
97.8833 |
-3.3 |
|
03/02/18 |
2.855 |
98.0114 |
-3.2 |
|
03/09/18 |
2.893 |
97.6872 |
-3.5 |
|
03/16/18 |
2.845 |
98.0969 |
-3.1 |
|
03/23/18 |
2.826 |
98.2597 |
-3.0 |
|
03/30/18 |
2.739 |
99.0087 |
-2.2 |
|
04/06/18 |
2.778 |
98.6721 |
-2.6 |
|
04/13/18 |
2.825 |
98.2682 |
-3.0 |
|
04/20/18 |
2.953 |
97.1778 |
-4.0 |
|
04/27/18 |
2.955 |
97.1609 |
-4.1 |
|
05/04/18 |
2.943 |
97.2625 |
-3.9 |
|
05/11/18 |
2.970 |
97.0340 |
-4.2 |
|
05/18/18 |
3.065 |
96.2350 |
-5.0 |
|
05/25/18 |
2.928 |
97.3897 |
-3.8 |
|
06/01/18 |
2.889 |
97.7213 |
-3.5 |
|
06/08/18 |
2.938 |
97.3049 |
-3.9 |
|
06/15/18 |
2.922 |
97.4406 |
-3.8 |
|
06/22/18 |
2.902 |
97.6106 |
-3.6 |
|
06/29/18 |
2.850 |
98.0542 |
-3.2 |
|
07/06/18 |
2.821 |
98.3025 |
-2.9 |
|
07/13/18 |
2.830 |
98.2254 |
-3.0 |
|
07/20/18 |
2.890 |
97.7128 |
-3.5 |
|
07/27/18 |
2.959 |
97.1270 |
-4.1 |
|
08/03/18 |
2.952 |
97.1863 |
-4.0 |
|
08/10/18 |
2.859 |
97.9772 |
-3.2 |
|
08/17/18 |
2.870 |
97.8833 |
-3.3 |
|
08/24/18 |
2.823 |
98.2854 |
-2.9 |
|
08/31/18 |
2.850 |
98.0542 |
-3.2 |
|
09/07/18 |
2.936 |
97.3218 |
-3.9 |
|
08/14/18 |
2.987 |
96.8905 |
-4.3 |
|
09/21/18 |
3.067 |
96.2182 |
-5.0 |
|
09/28/18 |
3.055 |
96.3187 |
-4.9 |
|
10/05/18 |
3.231 |
94.8567 |
-6.3 |
|
10/12/18 |
3.137 |
95.6344 |
-5.6 |
|
10/19/18 |
3.198 |
95.1289 |
-6.1 |
|
10/26/18 |
3.077 |
96.1346 |
-5.1 |
|
11/02/18 |
3.216 |
94.9803 |
-6.2 |
|
11/09/18 |
3.188 |
95.2115 |
-6.0 |
|
11/16/18 |
3.075 |
96.1513 |
-5.0 |
|
11/23/18 |
3.039 |
96.4529 |
-4.7 |
|
11/30/18 |
3.014 |
96.6630 |
-4.5 |
|
12/07/18 |
2.848 |
98.0713 |
-3.1 |
|
12/14/18 |
2.892 |
97.6957 |
-3.5 |
|
12/21/18 |
2.791 |
98.5602 |
-2.7 |
|
12/28/18 |
2.736 |
99.0346 |
-2.2 |
|
01/04/19 |
2.568 |
99.7119 |
-1.5 |
|
01/11/19 |
2.700 |
99.3466 |
-1.9 |
|
01/18/19 |
2.780 |
98.6549 |
-2.6 |
|
01/25/19 |
2.750 |
98.9136 |
-2.3 |
|
02/01/19 |
2.691 |
99.4247 |
-1.8 |
|
02/08/19 |
2.636 |
99.039 |
-1.3 |
|
02/15/19 |
2.667 |
99.6335 |
-1.6 |
|
02/22/19 |
2.652 |
99.7642 |
-1.5 |
|
03/01/19 |
2.747 |
98.9395 |
-2.3 |
|
03/08/19 |
2.630 |
99.9563 |
-1.3 |
|
03/15/19 |
2.593 |
100.2803 |
-1.0 |
|
03/22/19 |
2.453 |
101.5171 |
0.3 |
|
03/29/19 |
2.416 |
101.8469 |
0.6 |
|
04/05/19 |
2.503 |
101.0734 |
-0.2 |
|
04/12/19 |
2.557 |
100.5967 |
-0.7 |
|
04/19/19 |
2.564 |
100.5351 |
-0.7 |
|
04/26/19 |
2.505 |
101.0557 |
-0.2 |
|
05/03/19 |
2.526 |
100.8700 |
-0.4 |
|
05/10/19 |
2.457 |
101.4815 |
0.2 |
|
05/17/19 |
2.398 |
102.0077 |
0.7 |
|
05/24/19 |
2.323 |
102.6811 |
1.4 |
|
05/31/19 |
2.141 |
104.3362 |
3.0 |
|
06/07/19 |
2.082 |
104.8792 |
3.6 |
|
06/14/19 |
2.095 |
104.7593 |
3.5 |
|
06/21/19 |
2.062 |
105.0640 |
3.8 |
|
06/28/19 |
2.006 |
105.5834 |
4.3 |
|
07/05/19 |
2.045 |
105.2214 |
3.9 |
|
07/12/19 |
2.107 |
104.6487 |
3.3 |
|
07/19/19 |
2.049 |
105.1843 |
3.9 |
|
07/26/19 |
2.080 |
104.8977 |
3.6 |
|
08/02/19 |
1.860 |
106.9513 |
5.6 |
|
08/09/19 |
1.736 |
108.1289 |
6.8 |
|
08/16/19 |
1.540 |
110.0202 |
8.7 |
|
08/23/19 |
1.526 |
110.1567 |
8.8 |
|
08/30/19 |
1.504 |
110.3716 |
9.0 |
|
09/06/19 |
1.554 |
109.8839 |
8.5 |
|
09/13/19 |
1.894 |
106.6310 |
5.3 |
|
09/20/19 |
1.754 |
107.9570 |
6.6 |
|
09/27/19 |
1.676 |
108.7039 |
7.4 |
|
10/04/19 |
1.515 |
110.2641 |
8.9 |
|
10/11/19 |
1.753 |
107.9666 |
6.6 |
|
10/18/19 |
1.749 |
108.0047 |
6.7 |
|
10/25/19 |
1.800 |
107.5193 |
6.2 |
|
11/01/19 |
1.716 |
108.3202 |
7.0 |
|
11/08/19 |
1.929 |
106.3024 |
5.0 |
|
11/15/19 |
1.835 |
107.1876 |
5.9 |
|
11/22/19 |
1.773 |
107.7760 |
6.4 |
|
11/29/19 |
1.782 |
107.6903 |
6.4 |
|
12/06/19 |
1.838 |
107.1592 |
5.8 |
|
12/13/19 |
1.820 |
107.3296 |
6.0 |
|
12/20/19 |
1.915 |
106.4337 |
5.1 |
|
12/27/19 |
1.869 |
106.8664 |
5.5 |
|
01/03/20 |
1.791 |
107.6048 |
6.3 |
|
01/10/20 |
1.826 |
107.2727 |
5.9 |
|
01/17/20 |
1.836 |
107.1781 |
5.8 |
|
01/24/20 |
1.678 |
108.6847 |
9.3 |
|
01/31/20 |
1.521 |
110.2055 |
8.8 |
|
02/07/20 |
1.579 |
109.6409 |
8.3 |
|
02/14/20 |
1.587 |
109.5633 |
8.2 |
|
02/21/20 |
1.473 |
110.6753 |
9.3 |
|
02/28/20 |
1.148 |
113.9161 |
12.5 |
|
03/06/20 |
0.709 |
118.4650 |
17.0 |
|
03/13/20 |
0.955 |
115.8912 |
14.5 |
|
03/20/20 |
0.949 |
115.9533 |
14.5 |
|
03/27/20 |
0.731 |
118.2322 |
16.8 |
|
04/03/20 |
0.592 |
119.7116 |
18.2 |
|
04/10/20 |
0.729 |
118.2536 |
16.8 |
|
04/17/20 |
0.657 |
119.0192 |
17.5 |
|
04/20/20 |
0.598 |
119.6473 |
18.2 |
|
05/01/20 |
0.637 |
119.2304 |
17.7 |
|
05/08/20 |
0.679 |
118.7832 |
17.3 |
|
05/15/20 |
0.641 |
119.1877 |
17.7 |
|
05/22/20 |
0.661 |
118.9747 |
17.5 |
|
05/29/20 |
0.649 |
119.1025 |
17.6 |
|
06/05/20 |
0.912 |
116.3365 |
14.9 |
|
06/12/20 |
0.700 |
118.5604 |
17.1 |
|
06/19/20 |
0.686 |
118.7089 |
17.2 |
|
06/26/20 |
0.643 |
119.1664 |
17.7 |
|
07/03/20 |
0.673 |
118.8470 |
17.4 |
|
07/10/20 |
0.632 |
119.2838 |
17.8 |
|
07/17/20 |
0.627 |
119.3372 |
17.9 |
|
07/24/20 |
0.587 |
119.7652 |
18.3 |
|
07/31/20 |
0.540 |
120.2704 |
18.8 |
|
08/07/20 |
0.567 |
119.9799 |
18.5 |
|
08/14/20 |
0.708 |
118.4756 |
17.0 |
|
08/21/20 |
0.633 |
119.2731 |
17.8 |
|
08/28/20 |
0.733 |
118.2111 |
16.7 |
|
09/04/20 |
0.722 |
118.3274 |
16.9 |
|
09/11/20 |
0.672 |
118.8576 |
17.4 |
|
09/18/20 |
0.689 |
118.6771 |
17.2 |
Note: price is calculated for
an artificial 10-year note paying semi-annual coupon and maturing in ten years
using the actual yields traded on the dates and the coupon of 2.625% on
11/04/10
Source:
http://professional.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000
Chart VI-8 of the Board of Governors of the Federal
Reserve System provides the yield of the ten-year constant maturity Treasury
and the overnight fed funds rate from Jan 2, 1962 to Sep 17, 2020. The yield of
the ten-year constant maturity Treasury stood at 7.67 percent on Feb 16, 1977.
A peak was reached at 15.21 percent on Oct 26, 1981 during the inflation
control effort by the Fed. There is a second local peak in Chart VI-8 on May 3,
1984 at 13.94 percent followed by another local peak at 8.14 percent on Nov 21,
1994 during another inflation control effort (see Appendix I The Great
Inflation). There was sharp reduction of the yields from 5.44 percent on Apr 1,
2002 until they reached a low point of 3.13 percent on Jun 13, 2003. The fed
funds rate was 1.18 percent on Jun 23, 2003 and the ten-year yield 3.36
percent. Yields rose again to 4.89 percent on Jun 14, 2004 with the fed funds
rate at 1.02 percent and the ten-year yield stood at 5.23 percent on Jul 5,
2006. At the onset of the financial crisis on Sep 17, 2007, the fed funds rate
was 5.33 percent and the ten-year yield 4.48 percent. On Dec 26, 2008, the fed
funds rate was 0.09 percent and the ten-year yield 2.16 percent. Yields
declined sharply during the financial crisis, reaching 2.08 percent on Dec 18,
2008, lowered by higher prices originating in sharply increasing demand in the
flight to the US dollar and obligations of the US government. Yields rose again
to 4.01 percent on Apr 5, 2010 but collapsed to 2.41 percent on Oct 8, 2010
because of higher demand originating in the flight from the European sovereign
risk event. During higher risk appetite, yields rose to 3.75 percent on Feb 8,
2011 and reached 0.69 percent on Sep 17, 2020 with the fed funds rate at 0.09
percent. Chart VI-8A provides the fed funds rate and the yield of the ten-year
constant maturity Treasury from Jan 2, 2001 to Sep 17, 2020. The final data
point for Sep 17, 2020, shows the fed funds rate at 0.09 percent and the yield
of the ten-year constant maturity Treasury at 0.69 percent. There has been a
trend of decline of yields with oscillations. During periods of risk aversion
investors seek protection in obligations of the US government, causing decline
in their yields. In an eventual resolution of international financial risks with
higher economic growth, there could be the trauma of rising yields with
significant capital losses in portfolios of government securities. The data in
Table VI-7 in the text is obtained from closing dates in New York published by
the Wall Street Journal (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata).
Chart VI-8, US, Overnight Federal Funds Rate and Ten-Year Treasury
Constant Maturity Yield, Jan 2, 1962 to Sep 17, 2020
Note: US Recessions in Shaded Areas
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart VI-8A provides the fed funds rate and the yield of
the ten-year constant maturity Treasury from Jan 2, 2001 to Sep 17, 2020. The
final data point for Sep 17, 2020, shows the fed funds rate at 0.09 percent and
the yield of the ten-year constant maturity Treasury at 0.69 percent. There has
been a trend of decline of yields with oscillations. During periods of risk
aversion investors seek protection in obligations of the US government, causing
decline in their yields. In an eventual resolution of international financial
risks with higher economic growth, there could be the trauma of rising yields
with significant capital losses in portfolios of government securities. The
data in Table VI-7 in the text is obtained from closing dates in New York
published by the Wall Street Journal (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata).
Chart VI-8A, US, Overnight Federal Funds Rate and Ten-Year
Treasury Constant Maturity Yield, Jan 2, 2001 to Sep 17, 2020
Note: US Recessions in Shaded Areas
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart
VI-9 of the Board of Governors of the Federal Reserve System provides
securities held outright by Federal Reserve banks from 2002 to 2020. The first
data point in Chart VI-9 is the level for Dec 18, 2002 of $629,407 million and
the final data point in Chart VI-9 is level of $7,064,475 million on Sep 16,
2020. On
October 25, 2017, at the beginning of the FOMC programmed reduction of the
balance sheet, Total Assets of Federal Reserve Banks stood at $4,461,117
million. Total Assets increased $2,603,358 million from $4,461,117 on Oct 25,
2017 to $7,064,475 on Sep 16, 2020. Total Assets of Federal Reserve Banks
increased from $3,981,420 million on Feb 20, 2019 to $7,064,475 million on Sep 16,
2020 by $3,083,055 million or 77.4 percent. The policy of reducing the fed
funds policy rate requires increasing the balance sheet. The line “Securities
Held Outright” increased from $4,019,823 million on Oct 25, 2017 to $6,414,387
on Sep 16, 2020 or $2,394,564 million. Securities Held Outright increased from
$3,617,939 million on Jul 24, 2019 to $6,414,387 on Sep 16, 2020 by $2,796,448
million or 77.3 percent. The Chair of the Federal Reserve Board, Jerome H.
Powell, at the 61st Annual Meeting on the National Association for
Business Economics, on Oct 28, 2019, in Denver, Colorado, stated (https://www.federalreserve.gov/newsevents/speech/powell20191008a.htm): “Reserve
balances are one among several items on the liability side of the Federal
Reserve's balance sheet, and demand for these liabilities—notably, currency in
circulation—grows over time. Hence, increasing the supply of reserves or even
maintaining a given level over time requires us to increase the size of our
balance sheet. As we indicated in our March statement on balance sheet
normalization, at some point, we will begin increasing our securities holdings
to maintain an appropriate level of reserves.18 That time is now upon us.
I want to emphasize that growth of our balance sheet for reserve
management purposes should in no way be confused with the large-scale asset
purchase programs that we deployed after the financial crisis. Neither the
recent technical issues nor the purchases of Treasury bills we are
contemplating to resolve them should materially affect the stance of monetary
policy, to which I now turn.”
Chart VI-9, US, Securities Held Outright by Federal Reserve
Banks, Wednesday Level, Dec 18, 2002 to Sep 16, 2020, USD Millions
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm
Chart
VI-9A of the Board of Governors of the Federal Reserve System provides Total
Assets by Federal Reserve banks from 2002 to 2020 (https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H41).
The first data point in Chart VI-9A is the level for Dec 18, 2002 of $720,761
million and the final data point in Chart VI-9A is level of $7,064,475 million
on Sep 16, 2020. On October 25,
2017, at the beginning of the FOMC programmed reduction of the balance sheet,
Total Assets of Federal Reserve Banks stood at $4,461,117 million. Total Assets
increased $2,603,358 million from $4,461,117 on Oct 25, 2017 to $7,064,475 on
Sep 16, 2020. Total Assets of Federal Reserve Banks increased from $3,981,420
million on Feb 20, 2019 to $7,064,475 million on Sep 16, 2020, by $3,083,055
million or 77.4 percent. The policy of reducing the fed funds policy rate
requires increasing the balance sheet. The Chair of the Federal Reserve Board,
Jerome H. Powell, at the 61st Annual Meeting on the National
Association for Business Economics, on Oct 28, 2019, in Denver, Colorado,
stated (https://www.federalreserve.gov/newsevents/speech/powell20191008a.htm): “Reserve
balances are one among several items on the liability side of the Federal
Reserve's balance sheet, and demand for these liabilities—notably, currency in
circulation—grows over time. Hence, increasing the supply of reserves or even
maintaining a given level over time requires us to increase the size of our
balance sheet. As we indicated in our March statement on balance sheet
normalization, at some point, we will begin increasing our securities holdings
to maintain an appropriate level of reserves.18 That time is now upon us.
I want to emphasize that growth of our balance sheet for reserve
management purposes should in no way be confused with the large-scale asset
purchase programs that we deployed after the financial crisis. Neither the
recent technical issues nor the purchases of Treasury bills we are
contemplating to resolve them should materially affect the stance of monetary
policy, to which I now turn.”
Chart VI-9A, US, Total Assets by Federal Reserve Banks,
Wednesday Level, Dec 18, 2002 to Sep 16, USD Millions
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm
Chart VI-10 of the Board of Governors of the Federal Reserve
System provides the overnight Fed funds rate on business days from Jul 1, 1954
at 1.13 percent through Jan 10, 1979, at 9.91 percent per year, to Sep 17, 2020,
at 0.09 percent per year. US recessions are in shaded areas according to the
reference dates of the NBER (http://www.nber.org/cycles.html). In the Fed
effort to control the “Great Inflation” of the 1970s (http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html https://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html https://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I
The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html), the fed
funds rate increased from 8.34 percent on Jan 3, 1979 to a high in Chart VI-10
of 22.36 percent per year on Jul 22, 1981 with collateral adverse effects in
the form of impaired savings and loans associations in the United States,
emerging market debt and money-center banks (see Pelaez and Pelaez, Regulation
of Banks and Finance (2009b), 72-7; Pelaez 1986, 1987). Another episode in
Chart VI-10 is the increase in the fed funds rate from 3.15 percent on Jan 3,
1994, to 6.56 percent on Dec 21, 1994, which also had collateral effects in
impairing emerging market debt in Mexico and Argentina and bank balance sheets
in a world bust of fixed income markets during pursuit by central banks of
non-existing inflation (Pelaez and Pelaez, International Financial
Architecture (2005), 113-5). Another interesting policy impulse is the
reduction of the fed funds rate from 7.03 percent on Jul 3, 2000, to 1.00
percent on Jun 22, 2004, in pursuit of equally non-existing deflation (Pelaez
and Pelaez, International Financial Architecture (2005), 18-28, The
Global Recession Risk (2007), 83-85), followed by increments of 25 basis
points from Jun 2004 to Jun 2006, raising the fed funds rate to 5.25 percent on
Jul 3, 2006 in Chart VI-10. Central bank commitment to maintain the fed funds
rate at 1.00 percent induced adjustable-rate mortgages (ARMS) linked to the fed
funds rate. Lowering the interest rate near the zero bound in 2003-2004 caused
the illusion of permanent increases in wealth or net worth in the balance
sheets of borrowers and also of lending institutions, securitized banking and
every financial institution and investor in the world. The discipline of
calculating risks and returns was seriously impaired. The objective of monetary
policy was to encourage borrowing, consumption and investment but the
exaggerated stimulus resulted in a financial crisis of major proportions as the
securitization that had worked for a long period was shocked with
policy-induced excessive risk, imprudent credit, high leverage and low
liquidity by the incentive to finance everything overnight at interest rates
close to zero, from adjustable rate mortgages (ARMS) to asset-backed commercial
paper of structured investment vehicles (SIV).
The
consequences of inflating liquidity and net worth of borrowers were a global
hunt for yields to protect own investments and money under management from the
zero interest rates and unattractive long-term yields of Treasuries and other
securities. Monetary policy distorted the calculations of risks and returns by
households, business and government by providing central bank cheap money. Short-term
zero interest rates encourage financing of everything with short-dated funds,
explaining the SIVs created off-balance sheet to issue short-term commercial
paper with the objective of purchasing default-prone mortgages that were
financed in overnight or short-dated sale and repurchase agreements (Pelaez and
Pelaez, Financial Regulation after the Global Recession, 50-1, Regulation
of Banks and Finance, 59-60, Globalization and the State Vol. I,
89-92, Globalization and the State Vol. II, 198-9, Government
Intervention in Globalization, 62-3, International Financial
Architecture, 144-9). ARMS were created to lower monthly mortgage payments
by benefitting from lower short-dated reference rates. Financial institutions
economized in liquidity that was penalized with near zero interest rates. There
was no perception of risk because the monetary authority guaranteed a minimum
or floor price of all assets by maintaining low interest rates forever or
equivalent to writing an illusory put option on wealth. Subprime mortgages were
part of the put on wealth by an illusory put on house prices. The housing
subsidy of $221 billion per year created the impression of ever-increasing
house prices. The suspension of auctions of 30-year Treasuries was designed to
increase demand for mortgage-backed securities, lowering their yield, which was
equivalent to lowering the costs of housing finance and refinancing. Fannie and
Freddie purchased or guaranteed $1.6 trillion of nonprime mortgages and worked
with leverage of 75:1 under Congress-provided charters and lax oversight. The
combination of these policies resulted in high risks because of the put option
on wealth by near zero interest rates, excessive leverage because of cheap
rates, low liquidity because of the penalty in the form of low interest rates
and unsound credit decisions because the put option on wealth by monetary
policy created the illusion that nothing could ever go wrong, causing the
credit/dollar crisis and global recession (Pelaez and Pelaez, Financial
Regulation after the Global Recession, 157-66, Regulation of Banks, and
Finance, 217-27, International Financial Architecture, 15-18, The
Global Recession Risk, 221-5, Globalization and the State Vol. II,
197-213, Government Intervention in Globalization, 182-4). A final
episode in Chart VI-10 is the reduction of the fed funds rate from 5.41 percent
on Aug 9, 2007, to 2.97 percent on October 7, 2008, to 0.12 percent on Dec 5,
2008 and close to zero throughout a long period with the final point at 0.09
percent on Sep 17, 2020. Evidently, this behavior of policy would not have
occurred had there been theory, measurements and forecasts to avoid these
violent oscillations that are clearly detrimental to economic growth and
prosperity without inflation. The Chair of the Board of Governors of the
Federal Reserve System, Janet L. Yellen, stated on Jul 10, 2015 that (http://www.federalreserve.gov/newsevents/speech/yellen20150710a.htm):
“Based on my
outlook, I expect that it will be appropriate at some point later this year to
take the first step to raise the federal funds rate and thus begin normalizing
monetary policy. But I want to emphasize that the course of the economy and
inflation remains highly uncertain, and unanticipated developments could delay
or accelerate this first step. I currently anticipate that the appropriate pace
of normalization will be gradual, and that monetary policy will need to be
highly supportive of economic activity for quite some time. The projections of
most of my FOMC colleagues indicate that they have similar expectations for the
likely path of the federal funds rate. But, again, both the course of the
economy and inflation are uncertain. If progress toward our employment and
inflation goals is more rapid than expected, it may be appropriate to remove
monetary policy accommodation more quickly. However, if progress toward our
goals is slower than anticipated, then the Committee may move more slowly in
normalizing policy.”
There is
essentially the same view in the Testimony of Chair Yellen in delivering the
Semiannual Monetary Policy Report to the Congress on Jul 15, 2015 (http://www.federalreserve.gov/newsevents/testimony/yellen20150715a.htm). The FOMC
(Federal Open Market Committee) raised the fed funds rate to ¼ to ½ percent at
its meeting on Dec 16, 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm).
It is a forecast
mandate because of the lags in effect of monetary policy impulses on income
and prices (Romer and Romer 2004). The intention is to reduce unemployment
close to the “natural rate” (Friedman 1968, Phelps 1968) of around 5 percent
and inflation at or below 2.0 percent. If forecasts were reasonably accurate,
there would not be policy errors. A commonly analyzed risk of zero interest
rates is the occurrence of unintended inflation that could precipitate an
increase in interest rates similar to the Himalayan rise of the fed funds rate
from 9.91 percent on Jan 10, 1979, at the beginning in Chart VI-10, to 22.36
percent on Jul 22, 1981. There is a less commonly analyzed risk of the
development of a risk premium on Treasury securities because of the
unsustainable Treasury deficit/debt of the United States (https://cmpassocregulationblog.blogspot.com/2018/10/global-contraction-of-valuations-of.html and
earlier https://cmpassocregulationblog.blogspot.com/2017/04/mediocre-cyclical-economic-growth-with.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier
and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html http://cmpassocregulationblog.blogspot.com/2016/07/unresolved-us-balance-of-payments.html and earlier http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-reducing.html and earlier http://cmpassocregulationblog.blogspot.com/2016/01/weakening-equities-and-dollar.html and earlier http://cmpassocregulationblog.blogspot.com/2015/09/monetary-policy-designed-on-measurable.html and earlier http://cmpassocregulationblog.blogspot.com/2015/06/fluctuating-financial-asset-valuations.html and earlier (http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html
and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html and earlier (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). There is not
a fiscal cliff or debt limit issue ahead but rather free fall into a fiscal
abyss. The combination of the fiscal abyss with zero interest rates could
trigger the risk premium on Treasury debt or Himalayan hike in interest rates.
Chart VI-10, US, Fed Funds Rate, Business Days, Jul 1, 1954
to Sep 17, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart VI-11 of the Board of Governors of the Federal
Reserve System provides the fed funds rate and the prime bank loan rate in
business days from Aug 4, 1955 to Sep 17, 2020. The overnight fed funds rate
was 2.0 percent on Aug 4, 1955 and the bank prime rate 3.25 percent. The fed
funds overnight rate is the rate charged by a depository institution with idle
reserves deposited at a federal reserve bank to exchange its deposits overnight
to another depository institution in need of reserves. In a sense, it is the
marginal cost of funding for a bank in the United States, or the cost of a unit
of additional funding. The fed funds rate is the rate charged by a bank to
another bank in an uncollateralized overnight loan. The fed funds rate is the
traditional policy rate or rate used to implement policy directives of the
Federal Open Market Committee (FOMC). Thus, there should be an association
between the fed funds rate or cost of funding of a bank and its prime lending
rate. Such an association is verified in Chart VI-11 with the rates moving
quite closely over time. On January 10, 1979, the fed funds rate was set at
9.91 percent and banks set their prime lending rate at 11.75 percent. On Dec
16, 2008, the policy determining committee of the Fed decided (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm):
“The Federal Open Market Committee decided today to establish a target range
for the federal funds rate of 0 to ¼
percent.” On Dec 14, 2016 (https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm),
“the Committee decided to raise the target level for the federal funds rate to
½ to ¾ percent.” On Mar 15, 2017, “the Committee decided to raise the federal
funds rate to ¾ to 1 percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm).
The FOMC raised the fed funds rate to 1 to 1 ¼ percent at its meeting on Jun
14, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170201a.htm).
The FOMC increased the fed funds rate to 1¼ to 1½ percent on Dec 13, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20171213a.htm). The FOMC
increased the fed funds rate to 1½ to 1¾ percent on Mar 21, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180321a.htm). The FOMC
increased the fed funds rate to 1¾ to 2.0 percent on Jun 13, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180613a.htm). The FOMC increased
the fed funds rate to 2.0 to 2¼ percent on Sep 26, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180926a.htm). The FOMC
increased the fed funds rate to 2¼ to 2½ percent on Dec 19, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm). The FOMC
decreased the fed funds rate to 2 to 2¼ percent on Jul 31, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm). The FOMC
decreased the fed funds rate to 1¾ to 2.0 percent on Sep 18, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm).
The FOMC decreased the fed funds rate to 1½ to 1¾ percent on Oct
30, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20191030a.htm). The FOMC
decreased the fed funds rate to 1 to 1¼ percent on Mar 3, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm). The FOMC
decreased the fed funds rate to 0 to ¼ percent on Mar 15, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm). On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues.
The final segment of Chart VI-11 shows similar movement
of the fed funds rate and the prime bank loan rate following the fixing of the
fed funds rate to approximately zero. In the final data point of Chart VI-11 on
Sep 17, 2020, the fed funds rate is 0.09 percent and the prime rate 3.25
percent. The causes of the financial crisis and global
recession were interest rate and housing subsidies and affordability policies
that encouraged high leverage and risks, low liquidity and unsound credit
(Pelaez and Pelaez, Financial Regulation after the Global Recession
(2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International
Financial Architecture (2005), 15-18, The Global Recession Risk
(2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government
Intervention in Globalization (2008c), 182-4). Several past comments of
this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html
Gradual unwinding of 1 percent fed funds rates from
Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points
from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime
mortgages and adjustable-rate mortgages linked to the overnight fed funds rate.
The zero-interest rate has penalized liquidity and increased risks by inducing
carry trades from zero interest rates to speculative positions in risk
financial assets. There is no exit from zero interest rates without provoking
another financial crash. The yields of Treasury securities inverted on
Mar 22, 2019 with the ten-year yield at 2.44 percent below those of 2.49
percent for one-month, 2.48 percent for two months, 2.46 percent for three
months, 2.48 percent for six months and 2.45 percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).
The final segment after 2001 shows the effects of unconventional monetary
policy of extremely low, below inflation fed funds rate in lowering yields.
This was an important cause of the global recession and financial crisis inducing
as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive risk taking,
a boom and bust in the housing market, and eventually the financial crisis and
recession.” Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An
explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our
findings suggest that the monetary tightening of 2004-2006 period ultimately
did achieve a slowdown in real activity not because of its impact on the level
of longer term interest rates, but rather because of its impact on the slope of
the yield curve. In fact, while the level of the 10-year yield only increased
38 basis points between June 2004 and 2006, the term spread declined 325 basis
points (from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major difference in the current cycle is the balance sheet of
the Fed with purchases used to lower interest rates in specific segments and
maturities such as mortgage-backed securities and longer terms.
Chart VI-11, US, Fed Funds Rate and Prime Bank Loan, Aug 4,
1955 to Sep 17, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Lending has become more complex over time. The critical fact of
current world financial markets is the combination of “unconventional” monetary
policy with intermittent shocks of financial risk aversion. There are two
interrelated unconventional monetary policies. First, unconventional
monetary policy consists of (1) reducing short-term policy interest rates
toward the “zero bound” such as fixing the fed funds rate at 0 to ¼ percent by
decision of the Federal Open Market Committee (FOMC) since Dec 16, 2008 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm). Second,
unconventional monetary policy also includes a battery of measures to also
reduce long-term interest rates of government securities and asset-backed securities
such as mortgage-backed securities. When inflation is low, the central bank
lowers interest rates to stimulate aggregate demand in the economy, which
consists of consumption and investment. When inflation is subdued and
unemployment high, monetary policy would lower interest rates to stimulate
aggregate demand, reducing unemployment. When interest rates decline to zero,
unconventional monetary policy would consist of policies such as large-scale
purchases of long-term securities to lower their yields. A major portion of
credit in the economy is financed with long-term asset-backed securities. Loans
for purchasing houses, automobiles and other consumer products are bundled in
securities that in turn are sold to investors. Corporations borrow funds for
investment by issuing corporate bonds. Loans to small businesses are also
financed by bundling them in long-term bonds. Securities markets bridge the
needs of higher returns by investors obtaining funds from savers that are
channeled to consumers and business for consumption and investment. Lowering
the yields of these long-term bonds could lower costs of financing purchases of
consumer durables and investment by business. The essential mechanism of
transmission from lower interest rates to increases in aggregate demand is
portfolio rebalancing. Withdrawal of bonds in a specific maturity segment or
directly in a bond category such as currently mortgage-backed securities causes
reductions in yield that are equivalent to increases in the prices of the bonds.
There can be secondary increases in purchases of those bonds in private
portfolios in pursuit of their increasing prices. Lower yields translate into
lower costs of buying homes and consumer durables such as automobiles and also
lower costs of investment for business.
Monetary policy
can lower short-term interest rates quite effectively. Lowering long-term
yields is somewhat more difficult. The critical issue is that monetary policy
cannot ensure that increasing credit at low interest cost increases consumption
and investment. There is a large variety of possible allocation of funds at low
interest rates from consumption and investment to multiple risk financial
assets. Monetary policy does not control how investors will allocate asset categories.
A critical financial practice is to borrow at low short-term interest rates to
invest in high-risk, leveraged financial assets. Investors may increase in
their portfolios asset categories such as equities, emerging market equities,
high-yield bonds, currencies, commodity futures and options and multiple other
risk financial assets including structured products. If there is risk appetite,
the carry trade from zero interest rates to risk financial assets will consist
of short positions at short-term interest rates (or borrowing) and short dollar
assets with simultaneous long positions in high-risk, leveraged financial
assets such as equities, commodities and high-yield bonds. Low interest rates
may induce increases in valuations of risk financial assets that may fluctuate
in accordance with perceptions of risk aversion by investors and the public.
During periods of muted risk aversion, carry trades from zero interest rates to
exposures in risk financial assets cause temporary waves of inflation that may foster
instead of preventing financial instability (Section
I and earlier https://cmpassocregulationblog.blogspot.com/2017/06/fomc-interest-rate-increase-planned.html and earlier https://cmpassocregulationblog.blogspot.com/2017/05/dollar-devaluation-world-inflation.html). During
periods of risk aversion such as fears of disruption of world financial markets
and the global economy resulting from collapse of the European Monetary Union,
carry trades are unwound with sharp deterioration of valuations of risk
financial assets. More technical discussion
is in IA Appendix: Transmission of Unconventional Monetary Policy at http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html.
Chart VI-12 of the Board of Governors of the Federal Reserve
System provides the fed funds rate, prime bank loan rate and the yield of a
corporate bond rated Baa by Moody’s. On Jan 10, 1979, the fed funds rate was
fixed at 9.91 percent and banks fixed the prime loan rate at 11.75 percent.
Reflecting differences in risk, the fed funds rate was 8.76 percent on Jan 2,
1986, the prime rate 9.50 percent and the Baa Corporate bond yield 11.38
percent. The yield of the Baa corporate bond collapsed toward the bank prime
loan rate after the end of extreme risk aversion in the beginning of 2009. The
final data point in Chart VI-12 is for Jul 7, 2016, with the fed funds rate at
0.40 percent, the bank prime rate at 3.50 percent and the yield of the Baa corporate
bond at 4.19 percent. Empirical tests of the transmission of unconventional
monetary policy to actual increases in consumption and investment or aggregate
demand find major hurdles (see IA Appendix: Transmission of Unconventional
Monetary Policy at http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html).
http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html).
Chart VI-12, US, Fed Funds Rate, Prim Bank Loan Rate and
Yield of Moody’s Baa Corporate Bond, Business Days, Aug 4, 1955 to Jul 7, 2016,
Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart VI-12A of the Board of Governors of the Federal
Reserve System provides the overnight fed funds rate and the bank prime rate on
business days from Jan 5, 2007 to Sep 17, 2020. There is a jump in the rates
and yield with the increase in fed funds rates target range from 0 to ½ percent
to ¼ to ½ percent on Dec 16, 2015 by the Federal Open Market Committee (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm),
½ to ¾ percent on Dec 14, 2016 (https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm)
and ¾ to 1 percent on Mar 15, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm).
The FOMC raised the fed funds rate to 1 to 1¼ percent at its meeting on Jun 14,
2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170201a.htm).
The FOMC increased the fed funds rate to 1¼ to 1½ percent on Dec 13, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20171213a.htm). The FOMC
increased the fed funds rate to 1½ to 1¾ percent on Mar 21, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180321a.htm). The FOMC
increased the fed funds rate to 1¾ to 2.0 percent on Jun 13, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180613a.htm). The FOMC
increased the fed funds rate to 2.0 to 2¼ percent on Sep 26, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180926a.htm). The FOMC
increased the fed funds rate to 2¼ to 2½ percent on Dec 19, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm). The FOMC decreased the fed funds rate to 2 to
2¼ on Jul 31, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm). The FOMC
decreased the fed funds rate to 1¾ to 2.0 percent on Sep 18, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm). The FOMC
decreased the fed funds rate to 1½ to 1¾ on Oct 30, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20191030a.htm). The FOMC
decreased the fed funds rate to 1 to 1¼ percent on Mar 3, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm). The FOMC
decreased the fed funds rate to 0 to ¼ percent on Mar 15, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm). On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. The final segment of Chart VI-11
shows similar movement of the fed funds rate and the prime bank loan rate
following the fixing of the fed funds rate to approximately zero. In the final
data point of Chart VI-12A on Sep 17, 2020, the fed funds rate is 0.09 percent
and the prime rate 3.25 percent. The causes of
the financial crisis and global recession were interest rate and housing
subsidies and affordability policies that encouraged high leverage and risks,
low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation
after the Global Recession (2009a), 157-66, Regulation of Banks and
Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual
unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen
consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to
reach 5.25 percent caused default of subprime mortgages and adjustable-rate
mortgages linked to the overnight fed funds rate. The zero-interest rate has
penalized liquidity and increased risks by inducing carry trades from zero
interest rates to speculative positions in risk financial assets. There is no
exit from zero interest rates without provoking another financial crash. The
yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield
at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two
months, 2.46 percent for three months, 2.48 percent for six months and 2.45
percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). Unconventional monetary
policy of extremely low interest rates was an important cause of the global
recession and financial crisis inducing as analyzed by Taylor (2018Oct 19, 2)
“search for yield, excessive risk taking, a boom and bust in the housing market,
and eventually the financial crisis and recession.” Monetary policy deviated
from the Taylor Rule (Taylor 2018Oct19 see Taylor
1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2019Oct19
and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An
explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our
findings suggest that the monetary tightening of 2004-2006 period ultimately
did achieve a slowdown in real activity not because of its impact on the level
of longer term interest rates, but rather because of its impact on the slope of
the yield curve. In fact, while the level of the 10-year yield only increased
38 basis points between June 2004 and 2006, the term spread declined 325 basis
points (from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major
difference in the current cycle is the balance sheet of the Fed with purchases
used to lower interest rates in specific segments and maturities such as
mortgage-backed securities and longer terms.
Chart VI-12A, US, Fed Funds Rate and Prime Bank Loan Rate,
Business Days, Jan 5, 2007 to Sep 17, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart VI-12B of the Board of Governors of the Federal
Reserve System provides the fed funds rate and prime bank loan rate on business
days from Jan 2, 2001 to Sep 17, 2020. The behavior over time is that of
controlled interest rates. Unconventional monetary policy with zero interest
rates and quantitative easing is quite difficult to unwind because of the
adverse effects of raising interest rates on valuations of risk financial
assets and home prices, including the very own valuation of the securities held
outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds
rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25
percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused
default of subprime mortgages and adjustable-rate mortgages linked to the
overnight fed funds rate. The zero-interest rate has penalized liquidity and
increased risks by inducing carry trades from zero interest rates to
speculative positions in risk financial assets. There is no exit from zero
interest rates without provoking another financial crash. The final segment
shows the repetition of this policy with minute increases in interest rates. The causes of
the financial crisis and global recession were interest rate and housing
subsidies and affordability policies that encouraged high leverage and risks,
low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation
after the Global Recession (2009a), 157-66, Regulation of Banks and
Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual
unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen
consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to
reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages
linked to the overnight fed funds rate. The zero-interest rate has penalized
liquidity and increased risks by inducing carry trades from zero interest rates
to speculative positions in risk financial assets. There is no exit from zero
interest rates without provoking another financial crash. The yields of
Treasury securities inverted on Mar 22, 2019 with the ten-year yield at 2.44
percent below those of 2.49 percent for one-month, 2.48 percent for two months,
2.46 percent for three months, 2.48 percent for six months and 2.45 percent for
one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). The final segment after
2001 shows the effects of unconventional monetary policy of extremely low,
below inflation fed funds rate in lowering yields. This was an important cause
of the global recession and financial crisis inducing as analyzed by Taylor
(2018Oct 19, 2) “search for yield, excessive risk taking, a boom and bust in
the housing market, and eventually the financial crisis and recession.”
Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An
explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our
findings suggest that the monetary tightening of 2004-2006 period ultimately
did achieve a slowdown in real activity not because of its impact on the level
of longer term interest rates, but rather because of its impact on the slope of
the yield curve. In fact, while the level of the 10-year yield only increased
38 basis points between June 2004 and 2006, the term spread declined 325 basis
points (from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major
difference in the current cycle is the balance sheet of the Fed with purchases
used to lower interest rates in specific segments and maturities such as
mortgage-backed securities and longer terms.
Chart VI-12B, US, Fed Funds Rate and Prime Bank Loan Rate,
Business Days, Jan 2, 2001 to Sep 17, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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