The yields are still very low. They don’t keep up with inflation, and if they eventually do, that’s probably not good news either. Even if the Federal Reserve manages to reduce the rate of inflation close to its 2 percent target rate, it will slow the economy, perhaps tipping it into a recession.
If the slowdown is evident, the Fed is likely to start cutting rates, creating an opportunity for nimble money market fund managers to beat inflation by a small amount. While money market fund yields are improving, as an investment they remain a bad idea.
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Similar ideas to When rates fall again
The Fed rate is also tied to inflation, which impacts earnings, which affects consumer spending. Inflation also moves hourly wages and direct interest rates. This can create the impression that interest rates and consumer spending are more closely related than they are.
The Federal Reserve...
The Federal Reserve does not want to start a recession because part of its dual mandate is to keep the economy healthy. But, the Fed's dual mandate also includes keeping inflation low. A cure for rising inflation is higher interest rates, which slows the economy.
For example, in 1981, ...
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