Fed Expected to Slash Key Rate for First Time in Four Years

Fed Expected to Slash Key Rate for First Time in Four Years

www.foxnews.com

WASHINGTON — A serious bout of financial market instability has dramatically changed the debate at the Federal Reserve from worries about inflation to concerns about the possibility of a recession.

The Fed is widely expected to cut its target for the federal funds rate, the interest that banks charge each other, on Tuesday for the first time in four years.

(visit the link for the full news article)



[edit on 18-9-2007 by UM_Gazz]

Well, thought I would post this for all you market buff's out there...Is this good or bad? I figure we will know for sure in the next couple of days...starting to get nervous about the Sept 21 date...

www.foxnews.com
(visit the link for the full news article)

In all honesty, I am not so sure of an imminent rate cut. The whole purpose of the rate cut was due to the liquidity crisis. I do not see that crisis being anywhere near over, but the immediate effectiveness of a cut has been negated due to the slow down of the panic, the rebound in the markets and the fact that the markets have already priced in a rate cut. What is more important is the statement the FED produces with this rate decision. If they cut 50 bps (I highly doubt it) [bps = basis point or % points] and only speak about inflation as their worry, we are in big truble and the market goes down. If they only cut 25 bps (more likely, but not certain) and speak of only inflation in their statement, we again sell the market off. If they do either rate cut and speak of the pending liquidity crisis, the sub prime debacle, the weak dollar (not always a bad thing) then the market will stabilize and possibly (POSSIBLY) could rise. If there is no rate cut, and I am a believer that the FED should not move just because some hedge funds are in trouble, the market will tank. Could even be down 300-400 points. Despite what the statement says, this would be a bad thing for the market, but not necissarily for the economy. It was "free money" brought on by record low interest rates that got us here in the first place. You don't through the cause of the problem at the problem to fix the problem.

What I would rather see, is maybe the 25 bps move, so we don;t knock the market down, and a solid statement letting us know the FED intends on being vigilant with CURRENT crisises. The last meeting brought out a horrible statement showing the FED was asleep at the wheel. They were quoting date that was 4-6 months old and fighting the wrong fight. In their statement they only mentioned inflation, meanwhile mortgage banks were already collapsing. They missed an opportunity to stop alot of the mess from happening. By not cutting the 25bps last time and atleast mentioning the CURRENT crisis they showed they were incompetent. Bernanke was then left between a rock and a hard place. When action was necessary they blinked, but would not admit incompetence so they only lowered the Discount rate and not the FED rate. The 50 bps cut in the Discount rate rate meatn the FED would pump money into the system through 3 day repurcahses, or loans to the banks. This is one of the most inflationary things the FED has in their arsenal and was counter-productive to what their so called "mission" has been. They should have admitted their mistakes and took APPROPRIATE actions.

If their is no mention of the liquidity crisis, or if inflation is still the MAIN talking point of the FED's statement.....PLEASE demand Bernanke's resignation. The man can't be dumb enough to make the same mistake twice in 2 months.


Buy low....sell high!

Both the Federal Funds and Discount rates have been slashed by 50 basis points.