fed chair powell confirmed the markets expectations of a 4 fed funds rate with more to come the news launched the usual negative media reports and a shortlived stock market decline so now what to answer that question we need to understand why the fed’s rate raising is a positive step forward after years of earning next to nothing on their shortterm savings and investments savers investors funds and organizations are finally receiving meaningful interest income granted it still isnt enough to offset inflations purchasing power erosion but a “real” inflationadjusted rate is coming that is so long as the fed keeps interest rates to rise why do you say allowing many most people have forgotten that the key job of setting the price of money interest rates is the capital money market  not the federal reserve through the extensive ongoing bidding and offering process agreedupon interest rates are determined here’s why that process is superior to the federal reserve’s underlining identifies main points especially important are the key benefits   first both buyers and sellers provide or receive a fair equitable interest rate at the time the transaction is made   second capital resources are allocated to the highestbest use versus abnormally low rate money being used for secondrate or selfish actions   third  not at an “interest rate event” that happens only a few times during the year in rare times of financial stress when the capital money market is unable to fully function the federal reserve can act to restore the market the serious conditions in 2008 were such a time so the federal reserve stepped in and pushed rates down to a historically low level of near0 however when conditions improved in 2009 and thereafter fed chair ben bernanke decided not to allow the capital money market to set shortterm interest rates instead near0 became his base rate rationalized by his view that the economy was not good enough this approach eventually became viewed as normal engendering the belief that it is the feds job to set interest rates the damage that the 14year abnormally low feddetermined interest rate did to savers investors funds and organizations is financially and equitably enormous  and it cannot be undone moreover there is a lost sense and understanding that successful capitalism requires a robust capital money market to set interest rates ironically the feds own multiyear messaging now hampers its rateraising the actions are viewed negatively  as a harmful tightening that will lead to a recession the only route to make things right again is for the federal reserve to stop holding rates down and the fully capable capital money market to fully operate and reestablish the longmissing hopefully that is where this fed is headed the question that no one asks since the capital money market is fully capable of setting the market interest rate why doesnt the fed simply step away well the interest rate could shoot up yes the capital money market rate would be higher than 4 but that fact simply means the fed is continuing to hold down the rate keeping it below its appropriate level and that means the fed continues to run an easy money environment with its actions not yet producing a true tightening therefore instead of producing a recession its rate raising is ridding the financial system of abnormally low rates that produce weak and selfish actions moreover the fed isnt protecting us from an untethered runaway interest rate  in the capital money market all participants can alter their bids and asks plus jump in and pull out the market is where all these forces coalesce ensuring an understandable fulsome interest rate level in real time another point to remember is that the fed’s new 4 interest rate 4 is far above last years near0 so while todays capital money market rate would be higher there is less distance to travel now how far remains we wont know that until the capital money market is fully operating at that point the rate will depend on what terms investors capital suppliers and borrowers capital users are jointly willing to accept to summarize  yes the capital money market interest rate level is higher than today’s fedset 4 but know that the market rate will be appropriate  that is fair equitable understandable and accepted by the market participants the same cannot be true for the federal reserve’s 12person decision making process the bottom line  the federal reserves role is to support the capital market not replace it capitalism makes the us economy strong  not federal reserveism the longheld view of the feds role in the capital money market is as the lender of last resort to ensure the us financial system doesn’t freeze or break as in 2008 when conditions got out of hand and stressed the capital money market the fed can step in to provide support and restore confidence but then the fed’s role is to exit and let capitalism get its fully functioning capital markets back again