Mark Gilbert , Columnist

The Fed Is Losing Control of Monetary Conditions

The Fed may hold rates, but a change in money-market fund rules has tightened monetary conditions anyhow.

August 5, 2016 at 10:26 AM UTC

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. A former London bureau chief for Bloomberg News, he is author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

"Hi, is that the Fed? You gotta see this..."
Photographer: Chris Ratcliffe

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The Federal Reserve's next monetary policy decision, scheduled for Sept. 21, will be a non-event, according to the futures market, with about an 80 percent chance that the central bank will leave interest rates unchanged. But the unintended consequence of a rule change involving U.S. money-market funds means borrowing costs in the real world are already surging by enough to produce tighter monetary conditions even if the U.S. central bank sits on its hands.

The Fed's December move to increase its target rate -- the first tightening since 2006, and the only change of any kind since 2008 -- is unlikely to be repeated this year, based on the bets traders are making in the futures market. You have to look all the way out until the middle of next year before the likelihood of a rate hike surpasses the 50 percent mark: