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Has The Fed Stopped Easing? at Trader’s Narrative

Has The Fed Stopped Easing?

One of the very few economists that foresaw the financial crisis was Canadian David Rosenberg. He was the chief North American economist at Merrill Lynch but recently moved back to Canada and joined the boutique asset management firm of Gluskin Sheff in Toronto.

While the FOMC has held the Fed Funds Rate at zero to 0.25 since December, a recent report prepared for the San Francisco Fed claims that this policy will have to be continued for much longer than first anticipated.

In a recent report, Rosenberg shows the chart below and points out that the Fed may very well have stopped easing. Although the Fed’s balance sheet exploded in 2008 as they went on a liquidity rampage, it hasn’t budged so far this year. The ‘real’ rate (adjusted for inflation) is closer to +0.77%, having rapidly recovered from the extreme low in late 2008:

real fed fund rates chart

There are several relevant variables to watch: the 3 month Treasury Bill rate; Dr. Copper - which has already signaled that the worst is over; and the Baltic Dry Index which has now surpassed the March 2009 swing highs and begun a new uptrend.

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2 Responses to “Has The Fed Stopped Easing?”  

  1. 1 Darren

    Rosenberg knows as well as anyone that this ‘real rate’ analysis must be mentally adjusted by the user for QE. Once the central bank reaches the lower bound of zero and in a deflationary environment, further easing must be conducted via QE or else the result is as per the chart. Is anyone seriously suggesting that the US central bank isn’t minding the printing press with anything but full attention?

    I’m getting a little disappointed that he keeps beating the same drum with the same tune. He’s now in Canada where the TSX has had a new high several times in the past couple weeks and he’s solely focused on May 8 on the S&P500. I’m hoping for him to settle in, spend some time with family and broaden his perspective.

    BTW, great blog, thanks.

  2. 2 blues

    Who gives what FED do. they are fu**ed. LOOK AT TNX! Today we made a higher high. Green shoot? Green my a$$. You bulltard think this is a start of a new bull market?! WTF are you guys smoking?! Smoking those green weeds? Look this is the start of Bond market dislocation. This is major. Yesterday 30 year rate went up 30%! You think if interest keep going up, more people will buy home?! We are going get screwed by FED action. They are bunch of dumb MF, especially Bermonkey!

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