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Don’t Sweat the Fed

The Fed

Don’t Sweat the Fed

This should be short. There are a lot of good reasons not to worry about the FOMC raising Fed funds or not. If they raise Fed funds:

  • First, savers deserve a return. Economies work better when savers get rewarded.
  • Second, investors do better on the whole when there is a risk free asset earning something to allocate money to, because otherwise investors take too much risk in an effort to generate income.
  • Third, the FOMC should never have let Fed funds rates go below 1% anyway — the marginal stimulus is limited once the yield curve gets slope enough for the banks to lend. They don't really need more than that.
  • ...