The Oil Drum

Arkansawyer

"It gives time to prepare for a transition if in fact that is possible."

When the status quo is given time, we keep the status quo.

We now have the financial undead to match the political.

Friday, August 17, 2007
A 50 bp Gift From The Fed

The official Fed Funds target rate is 5.25%, but the effective rate is currently around 4.79% - this is the average at which Fed Fund transactions between banks have actually been taking place during the past 7-8 days. The Federal Reserve is supposed to intervene in the interbank money market to maintain its target rate, but it has not been doing so.

Since a variety of adjustable rate loans use the official Fed Funds rate as a benchmark, the Fed's lack of action is a direct gift to lenders who continue to pocket the 5.25%+spread rate on their loans, while their cost of funds has gone down almost 50 b.p. - at least for the portion that is related to the interbank market. A fifty basis point gift may not sound like much, but in banking it is huge. It is also conclusive evidence of unofficial easing which, if it goes on past this week, should start raising some awkward questions. For example, why is the Fed penalizing household borrowers for the benefit of the banks?

Posted by Hellasious-suddendebt

And this:

"Those still with jobs should be scared into permanently cutting back their energy use, cheaper prices or no."

The exact opposite-the more afraid, the more is used.

And outsiders are made to cut back. Think Republican Guard.