Some bank heads at the Fed are conflicted as to when to raise interest rates in response to expected strong economic conditions. Read more:

http://moneynews.com/Fin...es/2010/03/16/id/352925

Tyler Durden (my favourite anarchist) at zero hedge has an interesting article on the money multiplier (M3/Monetary Base) in the US in 2009. In the Kenyan context the money multiplier (money supply/reserves) has grown from 4.0 in December 2000 to 5.3 in December 2005 to 6.0 as at January 2010. Reserves are want commercial banks use to gauge their lending...leverage...the more reserves you have the more you can lend.

In 2008 it peaked at 6.1 in April 2008 during Safcom IPO, which is when the CBK used policy tools reverse repo and term auction facility to prop up the monetary base. In 2009 it peaked twice in April 2009 and October 2009. In response to the April 2009 peak the CBK began pumping reserves in May 2009 and began spending more money in November 2009 to counter the October peak.

The situation in the US is a little different considering the expansion of the monetary base in 2008 and the Fed paying interest on excess reserves. The money multiplier in the US is 0.95. The multiplier ended up this way because reserves injected in no longer stimulated credit expansion. Read more in the article below:

http://www.zerohedge.com...ults-only-79-cent-increa

Bob Prechter, Elliot Wave Theory president, questions that relationship between stocks and bonds...more specially the assumption that they compete with each other through some sort of inverse relationship. He tries to explain how this theory may not be realistic in the real world by charting graphs showing interest rates vs index movements during economic depressions. This is important to understand what happens to the market when interest rates are zero bound (going to 0%).

Read the article and see the graphs below:

http://www.elliottwave.c...-Is-Not-In-Control.aspx

Excerpt from the article

Bob shows this close-up of the history of the four biggest stock market declines of the past 100 years and continues:

"In ALL of these cases, interest rates fell and in two of those cases, they went all the way to zero! In those cases, investors should have traded ALL their bonds for stocks. But they didn't; instead, they sold stocks and bought bonds. To conclude, events and conditions do not make investors behave in any particular way that can be identified. Economists who assert a relationship (1) believe in their bedrock theory and (2) never check the data."

@guru267. Well that makes a lot of sense. They don't teach you that kind of stuff at uni though, huh. I'm also a fan of economic theory and desperately trying to link it to Kenya, so I can understand it from a local perspective.

Turns out not all the branches of the Federal Reserve Bank are in agreement that interest rates should kept low as it encourages risky behavior. These are the sentiments of Kansas City Federal Reserve Bank President Thomas Hoenig.

Hoenig is a voter on the Fed's policy setting panel this year and has dissented against the Federal Reserve Chairman Ben Bernanke and the U.S. central bank's promise to hold rates exceptionally low for an extended period, arguing it is no longer necessary for the Fed to tie its hands while the economy recovers.

He said on Wednesday the Fed could raise rates to around 1 percent, which would keep borrowing costs at historically low levels while sending a signal that easy money policies put in place during the crisis are steadily being pulled back.

"The time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease its reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy," Hoenig said.

Read more:

http://moneynews.com/Hea...LES/2010/04/07/id/355044

I think these rates are going to continue the nose dive...perhaps the low inflation expectations are contributing. 182 has fallen faster but also attracted more players, may be that explains the spread.