The Fed and the Zero Handle

Bernanke may soon be cutting rates big time.

By SHARE

When I noticed just now that the three-month treasury bill was, like, almost 0.00%—actually 0.04%—it did not compute. What that means is that people are desperate to find super-safe places to park their money. (That fear can also be seen in the $80-plus jump today in the price of gold, considered the ultimate safe haven.) There is a now a nearly 2 percentage point spread between three-month T-bills and the federal funds rate. Economist extraordinaire Mike Darda makes an interesting point: "There were similar inversions between T-bills and Fed funds during the crises/recessions of 1973-1974 and in 1980-81 just before large reductions in the Fed funds rate took place. If the Fed were to follow the T-bill yield down, the funds rate would now land at zero." Me: If a fed rate cut was what it took to fix things, I am sure Bernanke would have rather done that than launch rescues of Wall Street firms.

TAGS:
Federal Reserve
interest rates

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