The Misunderstanding Interest Rates, The Fed, And Money
Many believe the central banks, such as the Fed, controls interest rates. This is not how things work since the market tends to tell us what is going to happen.
Milton Friedman talked about the Interest Rate Fallacy which goes counter to what most believe. However, evidence supports what Friedman opined.
In this video I discuss how higher demand for money means that banks can charge more for it. Also, we look at how the drop in 10Y rates have taken place with the Fed not moving on the Fed Funds Rate.
▶️ 3Speak
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factor to look at for we all investors
Interest rate is not related to only central bank factor.
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I was not too familiar with how these things work, so this explanation is very helpful. After listening to this I realized that I was one of those that had an incorrect understanding. It would be nice if they made these thing easier to understand for regular people. It's like they want people to be confused so they can make themselves look smarter.
The idea I was exposed to first is the Fed sets the tone for interest rates but you have me thinking and you've given that evidence.
The cause and effect can be confused or the tail wagging the dog.
Great information and indeed we all are looking at Interest Rates as a way to predict how market will move. One suggestion that I would make is WEN TM4450 VIDEO SHORTS? It would be great to split such videos in smaller digestible content which would be more focused on one subject or the other. Cheers and congrats for the consistency of content, either in bull or bear markets which is quite inspiring!
Summary:
Task discusses the misconception surrounding interest rates, highlighting that high interest rates signify surplus money in the system, while low interest rates indicate a lack of money. He delves into how the demand for money affects interest rates and how central banks like the Federal Reserve operate in response to market movements. Task emphasizes the importance of understanding the relationship between interest rates, money supply, and economic expansion, debunking myths about the central bank's control over interest rates. He provides a detailed analysis of the fluctuation in interest rates, inflation narratives, and global economic indicators like the oil market.
Article:
In this video, Task sheds light on the intricacies of interest rates and challenges the common belief that central banks, such as the Federal Reserve, dictate interest rates. He introduces the concept of the interest rate fallacy coined by Milton Friedman, which asserts that high interest rates signal excess money in the economy, while low interest rates indicate a monetary deficiency. Task explains that interest rates are influenced by supply and demand dynamics, where high demand leads to higher rates. He emphasizes that the lending activities of banks play a crucial role in adjusting the money supply, which ultimately impacts interest rates.
Moreover, Task dissects the recent movements in interest rates, specifically highlighting the decline in long-term rates despite the Fed fund rate remaining unchanged. He criticizes the misconception that central banks proactively control interest rates, stating that market forces often dictate these fluctuations. Task elaborates on the role of the bond market and economic growth in shaping long-term interest rates, debunking myths about the Federal Reserve's omnipotence in monetary policy.
Furthermore, Task delves into inflation narratives, contrasting short-term disruptions like those caused by the COVID-19 pandemic with long-lasting inflationary periods witnessed in history. He critiques the efficacy of quantitative easing (QE) measures undertaken by central banks, using the Bank of Japan's experience to illustrate the limited impact of QE on inflation. Task emphasizes the importance of understanding global economic indicators like oil prices in gauging economic health, suggesting that dwindling demand for oil signals broader economic struggles.
In conclusion, Task encourages viewers to discern the complexities of interest rates, money supply, and economic indicators beyond the mainstream beliefs perpetuated by central banks. By dissecting historical data and global market trends, Task provides a comprehensive analysis of how interest rates, inflation, and economic factors interplay in shaping the financial landscape.
Notice: This is an AI-generated summary based on a transcript of the video. The summarization of the videos in this channel was requested/approved by the channel owner.