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Matt Levine

Fed Day, Junk Bonds and Unicorns

Also hedge-fund fundraising, financial stability, and a double dose of bond market liquidity.

What time is Fed Day?

The essence of finance is time travel. Saving is about moving resources from the present into the future; financing is about moving resources from the future back into the present. Stock prices reflect cash flows into an infinite future; a long-term interest rate contains within it predictions about a whole series of future short-term interest rates. Markets are constantly predicting future actions, and as those actions move closer in time, the predictions become more solid and precise. More than that, though: Because the markets don't just predict the future, but guide decisions and allocate resources in the present based on those predictions, the prediction is often more important than the outcome, so that some radical philosophers believe that the event itself is no more real than the market that predicts it. In a sense -- in a real, economically meaningful sense -- the Fed has already raised rates, because we have talked about it so much. In a sense, the Fed decision takes place within us, each day. In another, more accurate sense, though, "the Federal Open Market Committee releases its policy statement at 2 p.m. Wednesday," and will likely announce that it is raising short-term interest rates above zero for the first time in seven years. Get excited.