Zeev's Turnips Patch-No Politics (ZEEV)

[osprey]

Are Greenspan and the Federal Reserve out of ammo? The fed has been cutting rates now for 3 years to 1+%. After this latest cut, the interest rates in the real world have started climbing. Mortgages are up about a point and the effective yield on the 10 year treasury (^tnx up from 31 to 42) has gone up 35% in the last month and a half. Pretty weird and it has to be telling us something.

If the Fed cuts the federal fund rate and interest rates in the real world climb sharply, now what.
1. Looks like Greenspan and the fed are out of ammunition.
2. What are they going to do now, cut another .25%? Why, it didn't do anything last time.

I suspect that real interest rates are rising because the US government is running a 400 billion (or so) deficit. Massive borrowing on this scale results in competition for available dollars to loan out, supply and demand and all that.

If the interest rate bullets don't work, it could get pretty dicey. I already saw Treasury guy Snow this morning saying he sees signs that the economy is rebounding. The consumers sentiment says the US public does not. This sounds like talk therapy for the economy and markets; I don't believe wishing will work either.