Ok, so the US is off zero rates and the sky is still above us. Plenty of green on the screen from Asian and European markets.

Now here’s a question I have put to the Fed, but I don’t think I will get an answer anytime soon. It is very important, but its a bit wonky but stay with me because it may give some good insight into what the markets will do for the rest of the year.

As I’ve said, Yellen & Co. can’t just raise rates and leave it at that. The Fed must take liquidity out of the market through reverse repo. The pullback in liquidity could be as high as a trillion dollars. That’s why there was a fear of the rate hike. A reverse repo is the Fed exchanging assets (Treasuries bills and notes)  for the bank’s cash and paying interest — 0.25% — on that to the banks. This is how the liquidity drain is accomplished.

So, my question to the Fed is are they still going to roll over the maturing debt into new securities? If that’s the case, then they are not tightening at all and it will be difficult for the real rate to get to the 0.25% level.

Could this be why stocks got weak in the knees at 2:01 PM Wednesday and then soared? Would it be beyond the Fed to be duplicitous in its dealings with banks?

I think so, since raising rates was such a contentious issue anyway.

Time will tell on this, since I don’t think I will get the answer from the Fed.