Re: moore on term structure

[wfhummel@xxxxxxxxxxxxxx (William F. Hummel)]

On Fri, 10 Oct 1997 09:14:40 -0400, you wrote:

>Doug Henwood wrote:
>>
>> Michael Perelman wrote:
>>
>> >Is Doug saying the the fed cannot influence long term rates?
>>
>> Heavens no. As the astrology columns used to say, with long rates, the Fed
>> can impel, but it can't compel. Or as Jim Grant once said, it can play an
>> engaging tune, but it can't make people dance. The fed can (strongly)
>> influence long rates, but not set with the precision that it can set the
>> funds rate - the bond traders have the last word.
>>
>> Doug
>
>Of course, this is by choice.  It does have the option, for
>example, to 'make a market' in the 10 year Tsy, or, better
>still, the 10 year swap.  There is no way the market could
>trade 'through' the Fed's bid and offer.  However, as with
>current policy with overnight rates, there could be 'consequences,'
>etc., that would result in the Fed voting to change its rate
>target/policy.
>
>Greece, for example, sets the one year bill rate exogenously,
>and has been doing so for some time.
>
>Warren
------------
Are you implying that the Fed can control long term Treasury
rates (in a market totaling about $700 billion) at any desired
set point simply by utilizing its power to enhance or dry up the
money supply?  If so, would not the consequences  be potentially
so extreme as to render the whole concept academic?

William F. Hummel