The Federal Reserve continues to play catch up with the bond market. But with each successive rate cut, the fixed income market continues to stay one step ahead.
We still have an almost 150 basis point gap between the “risk free rate” (90 day Treasury Bills) and the intended federal funds rate - the blue line represents the most recent Fed rate, from mid 2006 to present:
Which is why I continue to believe, as I did months ago, that the Fed will cut rates before the new year. It may demolish the dollar, but they don’t really have a choice.
Something has to give and at the moment, the sacrificial lamb is the once mighty greenback.
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