CNBC should get an award for archaeology for digging up so many neanderthals and parading them across its air

I was having lunch watching CNBC (bad move, never do that) when the Fed raised rates today. First time in nine years. Then they had their panel of idiots, but one major idiot in particular, this guy named Scott Minerd who says that the Fed is going to have to drain $1 trillion from the banking system. The guy is a total idiot. CNBC should win some archaeology award for digging up these human neanderthals and putting them on their air. The Fed PAYS INTEREST ON RESERVES, SCOTT. That means no draining necessary. Why would banks lend  out below the funds rate? Reserve drains were from a time before the Fed paid interest on reserves. We're talking pre-2008. The Fed's OWN STATEMENT,which it released at the time of the rate decision, said it would keep doing what it's doing, that is, reinvesting principal payments and keeping holding sizable. Where do they get these idiots?

Here is the maximum level that the Fed can raise rates and no further. Your question is answered.

A lot of people have been saying the Fed can't raise rates that much or, the market won't let the Fed raise much or the economy won't or whatever. That's all bunk. None of those things matter, however, we can construct a model of just how far the Fed can raise rates, based on the knowledge that they must pay interest on reserves OUT OF THEIR OWN EARNINGS!

First let me mention that the Fed turned over $100 billion to the Treasury in FY 2015, so we know how much the Fed earns: $100 billion. That's how much it earns so that's how much it can pay.

On a portfolio of assets of $4.5 trillion, the Fed is earning about 2.2%. Actually, maybe a little bit more because its making most of its money on holdings of government securities ("those babies" in the words of Alan Simpson) and that amounts to $4.2 trillion so that's a return of 2.4%.

There's $4.5 trillion in reserves (equivalent to the Fed's assets by definition).

So the answer to how high the Fed can raise is 2.4%. That's it. After that it's out of money and you know DAMN WELL that there is no way Janet Yellen would go to Congress to ask for money to pay interest. NO WAY.

When the Fed didn't have to pay interest on reserves it was the Treasury's expense, but Ben Bernanke, in all his wisdom, convinced Congress back in 2008 that HE wanted that expense for some reason. Not exactly a Donald Trump, art of the deal, move. Before that, the Fed had the power to raise to infinity. Again, Treasury was on the hook to pay.

So, there's the answer to that question for anyone who is wondering. The maximum the Fed can raise is 2.4%. After that, it's literally out of money.

Feel free to distribute.