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Fed watch • Credit creation, cause & effect • May 4, 2022
The Federal Reserve buys and sells securities and sets interest rates to influence: borrowing costs, lending activity, inflation and employment; to varying effects.

•••

Last week, the Fed added $1bn net to its Treasury security holdings and trimmed $14.4bn net from its MBS holdings. The total amount of Reserve Bank credit decreased by $14.5bn net.
  • The 10-year Treasury yield rose by 11bp to 2.93%.
  • The 30-year fixed-rate mortgage rose by 17bp to 5.27.
  • The market expects the federal funds rate to hit 300-325bp by year-end. This was 275-300 last week.
  • Increases in the all civilian employment cost index are accelerating. Last quarter, employment costs were up 5.8% on an annualised basis. With real GDP per person in decline and wage rises accelerating, inflation is sinking deep roots into the U.S. economy.

•••

The Federal Reserve buys & sells securities
sources: Federal Reserve Bank of St. Louis, Board of Governors of the Federal Reserve System

And sets interest rates
source: CME Group Inc.

To influence: borrowing costs
source: Federal Reserve Bank of St. Louis

Lending activity
source: Federal Reserve Bank of St. Louis

Inflation & employment
source: Federal Reserve Bank of St. Louis

To varying effects
*money multiplier is calculated as M2÷monetary base. The pre-GFC average (1958-2007) was 8.9. sources: Federal Reserve Bank of St. Louis, Valuabl
Reasonable Yield's avatar
These are excellent weekly updates, thanks for putting them together.
Edmund Simms's avatar
@reasonableyield It's my pleasure.
Nathan Worden's avatar
I appreciate the update— I’m keeping an eye on mortgage rates and they’ve really zoomed up recently.
Edmund Simms's avatar
@nathanworden They sure have. It's likely they will keep going up, too.
David McDonough's avatar
This is amazing
Edmund Simms's avatar
@mcd Thank you, sir. I update it every Friday.

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