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Unintended consequences of lift-off in a world of excess reserves
Bar a disastrous NFP print this coming Friday the US Federal Reserve will change the target range for the Federal Reserve (Fed) Bank’s Funds rate from the current level of zero – 25bp to 25 – 50bp on December 16th. The Fed will effectively raise the overnight interbank rate of interest to around 30bp from an average of only 12bp in 2015. Ironically, that will be seven years, to the day, when the Fed first lowered rates to the current band. During the period of ZIRP madness, the Fed’s balance sheet ballooned 6.2 times its pre-Lehman size to allow the central bank to add monetary “stimuli” even at the zero ... (full story)