EC Market Valuation, Inflation And Treasury Yields - Clues From The Past

On the other hand, we could see a negative market reaction to a growing sense that Fed intervention may have its downside, resulting in an aberrant bond market and increased inflation/deflation risk.

We are indeed living in interesting times.

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Bob Hoye 3 years ago Contributor's comment

Hi Jill

You could stretch out your history to include all of the great financial bubbles. After the banking reform of the 1840s, the senior central bank (then, BoE) was allowed to liberally change administered rates. At times of great excitement beginning with the 1873 Bubble the senior central bank (now the Fed) has followed changes in short-dated market rates of interest. T-bills or equivalent. By many months.

For example, the 3-month bill increased to 5% in May 1929 and turned down in that fateful June. The first Fed cut on a normal post-bubble contraction was in October.

The 3-month reached 1.18% a few weeks ago and has declined to 1.06%, but has yet to break down.

There is an old saying in physics that if you keep your database short enough, it will fit your theory.

Both interventionist and "conservative" economists work with a short database.



Alexa Graham 3 years ago Member's comment

Thanks, Bob.