This post is a supplement to an upcoming article on Bitcoin Magazine. It further illustrates a point I make there.
The Bitcoin & Markets macro thesis includes the idea that central banks do not set interest rates. The Fed follows the market and jawbones to sway confidence and the market narrative. It goes by many names, Expectation Management, Expectation Policy or Forward Guidance.
We are told that Greenspan was the Maestro. The market waited on his every word. He conducted the economy like conductor does a symphony. BS.
Below is a chart of the Greenspan era at the Fed (1987-2006) showing the Effective Fed Funds Rate (red line) and the 3-month T-bill (blue line). If the Fed is in charge of rates, we should see the Fed Funds leading the market rates. But we see just the opposite.
I've highlighted 19 places where the market led the Fed, (and there's even more, as I write this I see at least one I missed). Among these are very important times at the tops and bottoms of trends/cycles.
What this tells us is that the Fed is not in control of rates. Greenspan had great insight on the market and where rates were heading is all. He followed while talking as though he was the Maestro.
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