[Afforess]

The federal reserve is keeping the federal funds rate low to try and run the economy "hot", and grow inflation. This is in the hopes that a "hot" economy will also grow wages and decrease unemployment further. Inflation is seen as less of a problem in recent years, as its been too low* for a long time.

The low federal funds rate (federal reserve interest rate) results in new Treasury bills being issued at very low interest rates. Large banking institutions must maintain certain capital reserves, which they hold in these TBills, and the low interest rates mean the banks earn tiny returns on the capital.

Banks, being commercial ventures, are expected to return a certain profit. The low interest rates from the TBills are too low of a rate, and won't cover inflation or operating expenses. So banks must chase riskier investments (in general, risky investments return higher interest rates) with their remaining capital to return high enough profits.

The riskiest investments are startups. Very high returns, if a startup succeeds and exits in an IPO, but failure is more common. Banks don't invest in startups though, they are too risky, but banks end up investing in all the less risky assets available. This demand for "medium" risky assets (sovereign debt, corporate or municipal bonds) drives other investors out of the market, they can't compete with the volume banks can purchase at, and are forced to chase the even riskier assets banks won't touch.

So low rates -> low interest tbills -> banks chasing risky assets -> investors chasing startups

[bogomipz]

Except that the Fed is not keeping the federal funds rate low. The Fed has raised the rate twice already this year as well as once at the end of 2016. They have also signaled that another increase is coming in December. See:

http://thehill.com/policy/finance/337790-fed-raises-rates-fo...

and

https://www.nytimes.com/2017/09/20/business/economy/fed-bond...

[xtacy]

It's still low by historical standards: https://fred.stlouisfed.org/series/FEDFUNDS

[bogomipz]

Yes but I was responding to the assertion that "The federal reserve is keeping the federal funds rate low ...", when that hasn't been the policy for almost a year now.

So the current Fed policy is not in fact indirectly subsidizing ride sharing.

[toomuchtodo]

The Fed is still keeping rates low because inflation isn't moving up, even with a tightening labor market (and they don't know why).

(Video) https://www.bloomberg.com/news/videos/2017-09-27/what-yellen...

[bogomipz]

The Fed has in fact raised the rates twice this years and once last year, how is that keeping rates low?

These rates are moved slowly and incrementally. You can't just raise the rate 3%.

That video in your link says nothing about keeping rates low, its about the nature of inflation.

[dragonwriter]

It has raised the rates from extremely low to very low, which is still keeping rates low.

Now, you can argue that that is in part because a rapid increase to non-low rates would be disruptive given the status quo ante, but that's a justification for keeping rates low, not a rebuttal to the claim that that is what the Fed is doing.

[dmode]

Aren't VCs always looking for higher return rate in their portfolios ? Thus, whatever the Fed funds rate is, the return is insignificant for a VC fund and they will always seek riskier investment. May be what's happening is that there is more capital for VCs to raise, since investing in moderate risky assets is not that attractive. And thus more money is funneled to riskier funds in search of a return.

[mandeepj]

What type of portfolio\profile you need to get fed money?

[jayess]

i.e. price fixing.