Stock Market/Investing/Fin Planning Catch-All

[superrific]

Let’s say Powell was fired and the new fed chair tried to lower rates. They could lower the fed funds rate but could their attempts to lower other rates fail as people flee US dominated debt?

They could buy treasuries but if people started fleeing those treasuries wouldn’t that drive up the interest rates anyway?

Inform me please.

1. The Fed is thought to have control over short-term rates through its open market operations. Long term rates, not really. One model of long-term rates is to think of them as a series of short-terms. Thus, if the market thinks a recession is coming, the market then thinks the fed will lower rates in the future and thus long-term rates can plunge below short-term rates -- the so-called inverted yield curve.

But I don't think that's a satisfying model. It's like Newtons laws -- it's fine for ordinary times, but in more extreme situations it breaks down.

2. In general, the Fed cannot defeat the market. If the market wants rates to be 9%, and the Fed tries to hold them at 5%, the Fed will run out of money. This has happened many times in the currency context (which is closely related to interest rates). The Bank Of England kept trying to prop up the pound in the late 80s, and kept failing, and that's how George Soros made so much money (shorting the pound). The Asian financial crisis was set off (not caused by) Korea's attempt to protect its currency rate; it ran out of money and had to come to NY for a bailout.

3. So your last question is best answered in the affirmative.