The wizards at Alhambra Investments ask a question (and provide some answers) close to the hearts of Icarus Signal readers…………..can you fight the Fed, and have, or will they, lose control?
If a central bank controls the money supply, then it can, in theory, control inflation. And if it accomplishes this feat through the use of a short-term money rate, then what part of bond yields would lie beyond its power? None.
That’s what bond yields are, after all, in theory the carrying forward of inflation expectations into the future built upon the foundation of short-term money rates. Since the Fed, for example, moves the federal funds rate around at will, and other money rates (used to) tend to follow along, then the entire yield curve is nothing more than a tool for central bankers to extend their influence deep into the financial system and therefore the economy………..Read more