馃挶馃挸 INTEREST RATE CYCLES 馃挸馃挶
The Federal Funds Effective Rate (EFFR) is the interest rate at which depository institutions (like banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. This rate is crucial because it serves as a benchmark for many other interest rates in the U.S. economy. It influences the cost of borrowing, impacts consumer loan rates like mortgages and credit cards, and affects the broader financial market.
Based on a FRED data, the next cycles can be appreciated:
↗️ 1946 - 1981: Bullish rate cycle [35y]
↘️ 1981 - 2016: Bearish rate cycle [35y]
↗️ 2016 - ¿'? : Bullish rate cycle? [¿'?y]
After World War II, the world was destroyed, the United States was conquered, and expansion began with the State as the central leader. Everything seemed to be going well until order was restored. The problem was that statism was an inflationary model linked to the gold standard and whatever it thought convenient to control, protect, and develop, thanks to the uncontrolled expansion of public spending.
In fact, the breach by the US of the Bretton Woods agreements in 1971 initiated the phase of change, which was catalyzed by the oil crisis throughout the 1970s and 1980s. When economic liberalization arrived and promoted the stagflationary phase derived from statism, the downward cycle of interest rates began.
Nowadays, protectionism seems to have returned with the US-China war as the main focus. Perhaps another 35-year cycle is coming. For the moment, all we know is a world dominated by the dollar, but things may change between now and 2050. If the cycle repeats itself, another phase of change will continue between 2030 and 2050. China, due to its weak financial markets, does not seem likely to become the total hegemon. However, the world could suffer decades of stagflation again.
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2025
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