Fed is expected to cut interest rate to 2.25% : Wall Street Journal

Fed is expected to cut interest rate to 2.25% : Wall Street Journal

online.wsj.com

NEXT WEEK
Short Week: Stock and bond markets will close for Good Friday.

Rate Cut: The Federal Reserve is expected to cut its target interest rate Tuesday, possibly to as low as 2.25% from the current 3%.

Going Public: Visa may raise around $16 billion, a record, in its initial public offering of stock.

Wall Street Pain: Goldman Sachs, Lehman Brothers, Morgan Stanley and Bear Stearns are all expected to post big losses. Bear Stearns shares plunged Friday after the firm got emergency loans from JPMorgan Chase and the Federal Reserve Bank of New York.

WaMu Watch: Washington Mutual may accept an offer this week from a large U.K. hedge fund to pump new capital into the mortgage lender.

(visit the link for the full news article)

Are these guys just not getting the picture? Are they not watching the inflation rates and what's happening to the dollar? Do they even care? Why don't they just cut the rate to zero and get it over with. lol

online.wsj.com
(visit the link for the full news article)

The Fed is cutting rates to instigate growth, solely.

The Fed auctioned off billions and began the 28 day treasury, to help keep the US banks liquid. (re: Bear Sterns)

The Mortgage interest rates will not track this, as they track supply and demand for mortgage backed securities. Right now?...there is no demand. IE-rates will go up or stay near parity with the rate of return it takes for investors to invest in mortgage backed securities. Double IE- alot.

If you look at this as growth instigation, as that is all it is by lowering rates, you will see some banks hoard dollars, and some banks distribute them to their target customers.

It is a teetery-tottery situation we are in indeed.

reply to post by DimensionalDetective


I think right now the collapse of the dollar has for all intents and purposes made the Fed's interest rate mechanism superfluous. Prices are skyrocketing from that pressure, and cutting interest rates has little leverage against that much more fundamental movement. The economy is in turmoil and they're punching the panic button right now, but it's not hooked up to anything.

At Friday's close, the Fed Funds Futures, April contract, settled +0.1600 on the flat CPI data. Pricing: 100% chance for 75bp...46% odds of 100bp.

At this point I'm calling 75bp...but there's a world of hurt out there tomorrow.

Ditto The Mogambo; WE'RE FREAKIN' DOOMED!



[edit on 16-3-2008 by OBE1]

By destroying the dollar the Fed is cutting off our nose to spite our face. The Reserve Currency status of the dollar has been the only thing backing it since it was taken off the Gold Standard by Nixon. When other countries can no longer tolerate the inflationary pressures of the dollar they will dump it. Then all those dollars will be coming home, making current inflation look like a picnic.

reply to post by gottago


The Fed rate cuts have been a major contributor to the collapse of the dollar. It makes the Treasuries and such less attractive to foreign investors, lowering the international demand for the dollars to buy them. Reduce demand for dollars on currency markets and you reduce the value of the dollar.

They either need to raise interest rates or start impounding and destroying some of the money printed the last few years if they want the value of the dollar to increase and to reduce real inflation.

Originally posted by OBE1
At Friday's close, the Fed Funds Futures, April contract, settled +0.1600 on the flat

CPI data. Pricing: 100% chance for 75bp...46% odds of 100bp.

At this point I'm calling 75%...but there's a world of hurt out there tomorrow.

Ditto The Mogambo; WE'RE FREAKIN' DOOMED!

Im glad the government puts our flawed CPI data. Talk about cooking the books. According to the Fed prices didnt go up in febuary. Im with you on the 75 but I wouldnt be surprised for them to do a full point to take it to 2%. It is on the table.

reply to post by DimensionalDetective


Its not that unusual for the Fed to try to delay any type of controversial move until after an election cycle. They don't want the perception that they are influencing the races. So, they try to keep the status quo, which may be the case here.

Either that, or they don't have any concept of monetary policy. Wouldn't be the first time. In the 70s, they took the conflicting stance of raising rates to control inflation and authorizing the Treasury to print a ton of new money to stimulate growth. 'Stagflation' was the result.

reply to post by vor78


The Fed has created the perfect storm by short-circuiting the business cycle for over a generation (by that I mean Greenspan, aka Mr. Bubbles).

You've got a 'damned if you do, damned if you don't' situation going on. They could have left rates high, but the economy would have tanked, and then you'd see the dollar take a hit as a result. Or you could drop rates in a bid to stave off recession and see the dollar tank.

Really just a question of which lousy outcome you want to see occur first.

reply to post by gottago


I certainly agree with that. None of the options left to the Fed at this point are particularly pleasant. But in the end, they're going to have to tighten their monetary policy considerably and ironically, it'll probably be less traumatic to the economy in the medium and long term than the road to inflationary oblivion we seem to be on at the moment.

reply to post by vor78


Agreed, but Bernake is no Volker, he's Greenspan lite, and the Fed right now has basically lost real control as the economy degrades and the dollar plummets (thanks to their own past manipulations) and they're still playing the game of pushing off the reckoning to tomorrow, which is indeed about as far away as tomorrow.

You know its pretty obvious right now that Wall Street is having a period of mass suspension of reality--they're all holding their breath because they don't want to see the whole house of cards collapse and so they continue to play the stupid game (which they know is stupid) that a rate cut is good news and things will be fine. They are collectively ignoring the fundamentals in the hope the game will just go on, and on.

What will really kick the blocks out is if we see dollar pegs start to break and debt-recycling via treasury buying stall on the international scene. Then the jig is up.

You folks know a whoooole lot more than I do about economics.

At the risk of being off topic...any suggestions for getting us out of the hole we're in? Even crazy, wild, never gonna happen theories?

Are we already experiencing 'stagflation"?

reply to post by themillersdaughter


The best bet is to start raising rates (or even keep them steady) and start destroying some of the money printed in the last few years. In short, the Fed needs to do a complete 180 and switch to a 'tight' monetary policy instead of a loose one as we have now. Reducing the supply of funds available should help improve the dollar's value, both domestically and on international currency markets.

The government also needs to cut spending and bring the budget into balance; this would reverse the increases in commercial bank and credit card rates we're seeing. Government borrowing crowds out consumer borrowing (there's only so much cash out there to borrow) resulting in higher rates.

Its a poison pill, no doubt about it, and would likely cause a recession and perhaps even a depression, but provides the quickest road to recovery. If we keep rearranging the deck chairs on the Titanic, we're probably going to end up in an even bigger mess 5-10 years from now when it really hits the fan.

Originally posted by themillersdaughter
You folks know a whoooole lot more than I do about economics.

At the risk of being off topic...any suggestions for getting us out of the hole we're in? Even crazy, wild, never gonna happen theories?

Are we already experiencing 'stagflation"?

Well first thing is first the government needs to admit there is a problem. We cant even get our president to admit we are in some serious trouble.

Second we need to let the big brokerages and banks go under that made the bad bets. We are spending and going to spend way more money than we have to actually bail these guys out (Like Bear Sterns). The point of a recession is to "cleanse the system" as all the wall street boys say. How you gonna cleanse the system if you keep bailing out these people. Ultimately the tax payers will get stuck with the bill of bailing these guys out and that is just not right at all considering the government doesnt want to give any bailouts to homeowners and small businesses.

Third let the banks work with homeowners without worries of lawsuits on either side to lower the principal balance of houses in trouble to keep the people in the houses. Yes its going to be a loss for the bank but they will lose a hell of a lot more if they dont keep people in houses. This will create a bottom because we will now now what these houses are valued at and can move forward.

Finally we need to fire the fed. Get rid of them and go to gold or silver backed currency. The monetary system we are in is destined to fail and will bring down our whole country with it. If we have money backed by gold and money that is issued by the government and not a private bank we can only spend what money we have backed in gold. There would be no more reason to tax. If we need more money we need to get more gold which would keep the government from spending all sorts of money that we dont have. No taxes keeps money in peoples pockets which can grow the economy and sustain growth instead of having recessions. If you have a strong currency and no debt and hi GDP there is no reason that we should have a recession. The fact is people are working harder and harder and their incomes are going no where while the price of everything is going up. If we were backed by gold at this point we would have no isses because gold has kept up with the inflation for the most part.

reply to post by gottago


Well this is a first, I'm replying to my own post!

DimensionalDetective just posted a thread here saying Brazil and Argentina have just done what I was worried about--decoupling from the dollar for commercial transactions.

here we go...

I think the problem is that we are under the impression that this is by accident. I for one believe that is is completely intentional. And there's only two possibilities for the reason why.

Either (A) they want to sink our constitution by destroying our country and its soverienty, or (B) use slight of hand to sling shot their investments after everyone has dumped the dollar.

It's a toss up really. Either way, its not going away any time soon, because what is happening is by design.

Watch the gas soar to 4 and 5 dollars a gallon and also how much of that rate is going to be passed to the consumer?

Because so far is has been me, me and me (for the financial institutions) and nothing for us.



[edit on 16-3-2008 by marg6043]

reply to post by marg6043


Well Marg that's absolutely certain, after all oil is priced in dollars and the dollar is dropping like a rock and the value of oil remains the same, or grows, so that's a given. The dollar falling so low is going to spur inflation all over the economy; importers don't want to subsidize our problems.

Late Friday, U.S. interest rate futures implied traders are placing a 60 percent chance that the Fed would lower the benchmark short-term target rate 100-basis-points by Tuesday.

Source

100 bp wouldn't surprise me. The Fed knows the psychology of the markets is in the toilet at the moment. Most people don't know any better and think a 100 bp cut is a good thing.

What chaos there shall be tomorrow