Before last Fed meeting back in June there were claims that the Fed has lost control of setting interest rates and that the central bank would "say something" in its statement at the meeting to "try" to get rates to move lower.
Well, it went one better. Here's what is said in the statment:
|"...the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn."|
On June 24 reserve balances, Fed Treasury holdings and interest rates looked like this:
Reserve balances on 6/24: $692 billion
Treasuries held as of 6/24: $647 billion
10-year Treasury interest rate on June 24: 3.72%
On July 8, it looked like this
Reserve balances as of 7/8: $751 billion
Treasuries held as of 7/8: $669 billion
Yield on 10-year Treas: 3.3%
Fed said it would buy Treasuries. Fed bought Treasuries. Interest rates on Treasuries came down. Case closed.
By the way, notice in that statement the Fed also said it would buy mortgage-backed securities. It hasn't done so yet, but it will. So if you are shopping for a mortgage, wait!! Mortgage rates will come down.
"Interest rates are a parameter set by the central bank, period!" -Economist James Tobin