30-Day Fed Fund Rate 1989-2017 Review

I have been looking at the 30-Day Fed Funds futures charts. Fed fund rate is the interest rate charged between banks and by the looks of the past pattern this rate has a huge impact on the stock market and gold. Years ago I saw a chart made by Elliott Wave International (EWI) and they simply said that the “fed” just follows the 30-Day Fed Funds rate. The Fed raises rates, when the 30-Day rate allows them to.

The top line at the 100 price level would represent the Fed is giving the money away, which technically should never happen. We can see that there are small sideways movements with some lasting a bit more than a year where they do nothing. This “do nothing” time period is the start of major reversals in monetary policy.  The patterns of the moves look very “square” or flat, opening small gaps along the way.

The bottom trend line is drawn to give us some perspective, but it does not mean that the rate increases will crash that far down.

I will be looking at and posting the Fed fund rate a bit more often, and one key thing to look for is when the Fed skips rate increases for 2-3 meetings and produce a flat bottom.

For the longest period of time of about 5-6 years the Fed did nothing but then started rate operations in 2015. Of course the stock market went wild and for a year the stock market didn’t like it.  By 2016 the markets soared again, but by late January 2018, investors had enough, and they proceeded to sell off as rates were not going down. I think these rate increase cycle will end, and the Fed will have to start easing again.

When that happens then the stock market could start to soar again. This is not going to happen overnight or next week, as I would like to see the commercial traders net long positions become biased to the long side.

In last week’s 30-Day COT report, the commercial traders  positions were about as net neutral as I have seen. (1:1) Until the commercials net long positions increase dramatically, the Fed rate increases should keep coming.  We don’t know if a flat bottom will form this time, but past bottoms suggests a flat bottom will form. If they do nothing for a year or more, then a reversal of rate policy should happen.

When we look at the Euro Dollar chart, it looks just like the 30-Day Fed fund rate. Commercials in the Euro Dollar have shifted into a net long position by a wide margin so they don’t think the rate increases will last for a long run.

There will be no Elliott Wave counts that I will produce with this Fed fund rate, because 100 is the glass ceiling of “zero percent”.  Think of it as a,  “bullet proof” glass ceiling!