Yesterday was Fed day. Were you sitting on the edge of your seat, biting your nails, hardly able to breathe until you found out the Fed’s rate decision? Well, that’s what a lot of traders do, but around here we mostly yawn and go to lunch because we’ve observed for decades that the Fed just follows the rates set on the freely traded Treasury market. The yield on 3-month T-bills has been flat since early November, so it’s no surprise that the Fed kept its rate flat as well.
And, look, we’re talking about the U.S. because of the rate decision yesterday, but you can do this with any country. If you’re the kind of person who has fun looking at financial charts, well you can have a whale of a time pulling up a chart of any central-bank-set rate on the planet and comparing it to a chart of the yield on freely traded short-term government debt for the same country. You’ll find time and time again that the central bank is a market follower, not a market leader. The market’s in control, not the Feds of the world.
A cactus with sunglasses would direct the course of interest rates just as effectively as a central bank—actually more so because the cactus is cheaper.
Happy surfing, Elliott wavers. Let’s talk again tomorrow.
Using central banks to forecast the markets? That’s putting the cart before the horse. For analysis of global rates, equities and more that puts the horse before the cart, click the link in the show notes.
