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How exactly does the fed funds rate flow through categories of financial entities that end up inflating growth equities and therefore VC returns? I understand t
by dustingetz 4y ago
How exactly does the fed funds rate flow through categories of financial entities that end up inflating growth equities and therefore VC returns? I understand the total cash in the system is vaguely leveraged/multiplied by borrowing, but this borrowed money flows through which parties specifically and how do these vaguely spoken of economic forces actually interact?
- csomar 4y agoI don't think even the Fed knows that. They are really playing with different instruments and seeing there effect on the economy. They have no idea how money flows and propagates. (see how high inflation surprised them).
- __derek__ 4y agoMinimal impact (probably). Most money in VC has an extremely long duration (e.g., pensions, endowments), so investing it in ultra-short-term assets is not a desirable option. Low long-term rates have a bigger impact, but that's a chicken-and-egg problem: the amount of institutional money seeking long-term returns exceeds the amount of safe assets, putting downward pressure on yields and pushing institutional money into riskier assets. This safe asset shortage is unrelated to the Federal Funds Rate on overnight lending.