Fed funds futures even discounted a rate hike at next month's regular Open Market Committee meeting.
Many expect the Fed will raise the Fed Funds rate later this year.
Fully four years ago, Bernanke and company dropped the Fed funds rate to 0%.
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It is with the Fed funds rate that logic about price controls goes out the window.
His study documents that a higher Fed Funds rate would increase the velocity of the monetary base.
That matches the 54 months of sub-zero real rates which the Fed Funds delivered in the 1970s.
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Everyone is focused on what the FED plans to do with interest rates, meaning the FED FUNDS rate.
With Fed Funds rates at 0.25%, or almost zero, the pendulum must swing back in the other direction.
Borrowing from other banks in the Fed Funds market does not create new reserves for the banking system.
The Fed did announce that it would keep the Fed Funds Rate between 0% and .25% through 2013.
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The Fed funds rate is money loaned from one bank to another overnight.
We think the limited reaction to the increase in rate expectations suggests room for a higher Fed funds rate.
Artificially low in fact, as a result of Federal Reserve easing, QE and a near zero Fed Funds rate.
Hence, when the target Fed Funds rate reached an effective zero rate, the Fed was not out of tools.
Short term, at least, the Fed's hawks should calm down and stop pressing for a higher Fed funds rate.
But playing around with others (Fed Funds etc) gives roughly the same shape.
Currently, the Fed funds rate is close to zero and is expected to remain there until at least mid-2013.
Fed funds will therefore probably remain very low until home prices rise materially.
The following is a graph of the fed funds rate and the 10-year Treasury rate over the past few decades.
It also buys the Fed time to assess the situation and possibly not act on the fed funds rate until September.
Quantitative easing is when the Fed buys up a specific dollar volume of Treasury securities, regardless of the Fed Funds rate.
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The Fed raised the Fed Funds rate from a low of 3.3% in February 1972 to more than 10% in July 1973.
In a normalized GDP environment next year (not a given) nobody projects Fed funds even at 2% and 10-year Treasuries above 4%.
Hussman of the Hussman Funds points out that an increase in the Fed Funds rate alone would increase, not decrease, inflationary pressures.
In that talk, he ostensibly outlined all of the tools available to the Fed if the overnight (Fed Funds) rate hit zero.
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Federal Reserve already charges for Fed funds by the minute, and the Bank of Japan charges a flat rate every four hours.
But the money markets are so dysfunctional that the benefits of a lower fed funds rate might be lost on most borrowers.
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