Is the FED at the mercy of the bond market?

Jan 19, 2008 in Finance

At the day of every FED meeting, the markets are almost always volatile. Traders on the bond and equity markets are speculating on whether the Federal Reserve will cut the Fund rate, and take positions accordingly. The Fed fund rate is the interest rate at which private institutions lend federal funds to other institutions. It is one of the open market operations that the Federal reserve can use to control the money supply. Many interest rates are calculated based on the Fed fund rate, and lowering this rate decreases the cost of borrowing money. Corporations reduce their interest rate costs associated with debt they have incurred or can borrow cheaper when the Fed rate drops.

Now, is the announcement random? Read the rest of my post at Bluemoat Financial