Fed up with Fed Talk: Central Banking Fairy Tales and Facts!

In the aftermath of the Fed's decision to lower the Fed Funds rate by half a percent on September 16, 2024, I looked at widely held myths about the Fed (and central banks, in general) - that they set interest rates (they don't), that they are market leaders (they are followers), that they send signals to investors and businesses (they do, but they are murky) and that they are stock market whisperers (not true). I use the data on Fed Funds rates, interest rates and stock prices to make my case, but the bottom line is that the Fed's power comes from the perception that it has power, rather than its capacity to move markets.

[ragebeau]

JPow here, good evening and welcome everyone. Today, the Board of Governors of the Federal Reserve System voted unanimously to like this video.

[sohamchakraborty]

Learnt more macroeconomics in these 27 mins than I have ever! G.O.A.T

[sumantrawat]

Thank you so much for this outstanding talk ! It's like the scales have fallen from my eyes !!

[GREGG-]

Additional earnings reports from major tech companies, driven by Nvidia, coupled with trader FOMO, could fuel a resurgence in market buying pressure. I'm considering investing over $300k, but I'm uncertain about risk mitigation strategies.

[CrazyVim]

Amazing analysis Professor. Thank you for breaking the illusion.

[Hstings]

To leave quantitative easing / yield curve control out of the discussion seems like a big oversight. The fed certainly influences rates, whether directly via QE, or indirectly via market interpretation.

[evanlebzu]

One of the best well spent half an hour in my life.

[halopartiska]

Absolutely briliant eyeopening summary and an epic lecture backed by the facts. THANK YOU, SIR.

[DilipDeo]

Great explanation Professor. Your contra views are amazing.

I would have been wiser if I had a teacher like you in my college days.

Lesson learnt : Never believe what you are made to believe.

[Jkkk]

I think that, for the first time, the Prof. is wrong.

First, interest rates moves in sync with the FED, not in the subsequent quarter, because they move with expectations.

If I am a bank doing a mortgage and I expect the FED to raise rates in 1 month, I'll charge you more. (Before the actual change).

Second, the FED actually influences rates because it sets the lower floor where rates cannot go using the FED Funds Rates but also the repo and reverse repo facilities.

If you move the base rate, everything else move in sync. Even before of the actual move just because markets move on expectations.

Third, the FED actually affects markets because markets participants believe it. It's all about narratives. (As the prof teaches)

Edit: grammar

[anthonyle]

The best video there is on the FED's role and influence.

[john]

I don't get it. Why did banks decresead their "prime lending rate" to 8% from 8.5% just minutes after Fed decision? Exactly a 0.5 cut

[SatyamRaina]

This is so insightful. Your insights are so valuable to understand these concepts. Thank you🙏

[anandp]

Excellent. Shakespeare thought of you when he wrote, brevity is the soul of wit.

[bhavyajain]

The impact doesn’t happen in the same quarter or subsequent because it happens in the previous quarters based on expectations!

[SatyamRaina]

Can't thank you enough for this video and your clarity of thought 🙏

[arishah]

Thanks for your insight. Really enjoyed it. Banks, usually set rates for consumers relative to the Fed Funds rate. Hence, this impacts consumer's savings or monthly budget which then reflects in company's revenues and hence impacts valuation or stock prices.

[hemida]

I'm not entirely convinced that market rates are determined solely by the market without central bank intervention with QE/yield curve controls, not to mention government stimulus impact. Great video. Thanks for the perspective.

[DailyLifewithKelly]

All these years, I have been fooled by the FED and mainstream news. Eye awakening.

[goldenturdZeniru]

Thank you so much for another easy to understand and rational presentation, Professor. A fan, from Portugal!