Higher interest rates might not have as much effect as is desired, but they've been kept artificially low for far to long and are finally being allowed to revert to something resembling market rates.

There's also a good argument to be made that the Fed isn't really raising them. Check out short-term T-bill rate charts. One might almost conclude that the Fed is really only matching what the markets have already done.

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The only way to get away from having rates set too "artificially" anything is for the Fed to let go of interest rates altogether. Frankly, I'm in favor of that. Central banks have not done any currency any good anywhere. Money supply, like any other supply, should not be "regulated"--by definition, that is a suboptimal economic arrangement.

What the Fed does--or at least tries to do--is influence interest rates. If we're getting very technical, the Fed doesn't even set the Federal Funds Rate, but rather sets a rate "target", which it expresses as a range of 25bps. However, as the Fed then uses its open market operations and other tools to get the Federal Funds Rate where it wants it, the markets by and large cut to the chase and process the announcement of a rise in the target range as a rate hike.

The market data certainly indicates that the Fed's rate announcement has an impact even on short term rates. If you look at the 3M T-Bill over the past week, the yield dipped sharply right before 2PM, and began rising again shortly after 2PM.


You see the same behavior on the 6M T-Bill as well.


While the actual yields differ from the 10-Year Treasury, short-term yields pretty much behave the same way as the longer term yields as to their behavior surrounding FOMC press releases.


Clearly, the Fed has the power to move the needle on debt yields.

However, I should point out that the second part of your argument has a slight problem in logic. If we accept the proposition that interest rates have been kept artificially low, meaning we have not had market-driven interest rates, how can we then have the Fed playing catchup to the markets on interest rates?

What is clear even when looking at the short term yields is that interest rates are not at all tracking to the inflation rate as measured by the CPI. Right around January/February of 2021, inflation broke upwards away from the trajectory of debt yields across the yield curve.


This is perhaps the most dramatic "tell" that the Fed's strategy on inflation is not going to pan out as expected.

This behavior between inflation and interest rates is completely different from what we see when we look at both the run up to the Volcker rate hikes beginning in 1979 and after. Back then, inflation and interest rates stayed much closer together, at least until after Volcker's rate hikes peaked, by which time interest rates were above the inflation rate and remained that way up until the 2008 GFC.


We are living in one of those rare times when "this time" really IS different.

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