Over the weekend, I spoke to my contacts in the banking industry trying to get a feel for banker sentiments on the Fed’s interest rate policy. The sentiments boiled down to the banks taking whatever the Fed decides in stride. As one contact put it, it’s about the money and the banks will take what the Fed has to give. Another contact summed up banker sentiment as being satisfied with where things are and that a hold on rates would reasonable.
At first blush these comments appear to align with a thesis I have been developing over the last several months. As an independent government agency, the Board of Governors of the Federal Reserve System is responsible for bank regulation and supervision, and as ex-officio members of the Federal Open Market Committee implements monetary policy.
As a government entity, the Board of Governors is responsible for spinning and signaling one facet of the government’s narrative, that being that the United States dollar and the underlying economy are worth the investment.
But is the Federal Reserve the lead on where rates need to be settled? The relationship between the Board of Governors and its district banks and the commercial banks it regulates has me believing that commercial banks have some influence on where rates go.
For example, when the Federal Reserve receives from various banks the Responses to the Survey of Market Expectations regarding the outcome of monetary policy decision-making, including the FOMC’s decision on administered rates, at first blush we may interpret the response as the financial markets opining on what the Fed may do next. I like to think rather that the banks may be telling or recommending to the Fed what monetary policy path the Fed should take especially in light of what the banks are seeing in money markets.
Having served on regulatory staffs, I learned to discern when an attorney appearing before a commission or a board was recommending in the strongest terms the path a policymaker should take. The public nature of the forums including the opportunity to file written comments prior to a policy decision gave me fodder to draw the conclusion that decisionmakers are susceptible to suggestion from industry and may not be the originator of proposed policies.
But in the world of monetary policy, the process is a little backwards. The biggest difference is the lack of public comment on a pending monetary policy decision. Under 12 USC sec. 553(b)(4)(B), and 12 CFR sec. 272.5, because the Board of Governors and the FOMC have found that notice and public procedure surrounding a decision on administered rates are impracticable, unnecessary, or contrary to the public interest, there will be no publication of a proposed action. And with a lack of publication on a proposed action comes no opportunity for public comment.
In short, the Fed does not want to give a heads up to speculators.
But, by collecting industry participant recommendations as to where rates are expected to go under the guise of sharing expectations on what they believe the Fed will do, the banks, their investors, and by extension, bondholders get to comment on proposed action weeks before the action takes place.
Unfortunately for retail foreign exchange traders and binary options traders, the recommendations on monetary policy offered by the banks are released to the public after a monetary decision has been made. Traders should still familiarize themselves with this part of the regulatory process to get a better understanding of what is happening inside the walled garden.
Alton Drew
24 August 2025
Lawyers Write the Bets. Bankers Sell the Bets. 