The Libor rate is the rate in which banks will lend to each other. The rate is set through an auction process so it is much better barometer of the banks willingness to lend. 6 month USD libor today was trading at over 5.47.
In contrast the Fed sets the price through its open market operations. (The effective rate, currently, is 4.86%, suggesting a cut from the target rate of 5.25% will be made at the next Federal Reserve Board meeting.)
The difference between the two is this- Libor is set where banks want to lend while the Fed is set through government policy.
As it stands, the banks are telling you that they are more concerned about lending money than the FED. Because the Fed is responsible for providing a stable market and because there is a large diffence between the two rates 5.47 and 4.86, the Fed is going to have to lend more money into the financial system to stabilize prices.
In a nutshell: Libor is where the Banks have come to an agreement to lend money- and the numbers point to them being more nervous than the governemnt.
Lower rates is not necessarily a good thing- as the Fed continues to lower rates and add an ever increasing amounts of liquidity the value of the US Dollar will continue to go down. If you ever look around and wonder why things have gotten so expensive, it’s because they have. As more dollars circulate- prices of goods go up. Your dollar is now worth less. The government by providing more dollars to the banking system is making everybody’s dollar worth less.
If you don’t think this is true just take a look at the price of Gold which now sits above 700$ an ounce or for that matter your food bill. The best way to protect your wallet is buy owning some Gold.
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