Silk Said "Seems like Fed will cut rates. If they are going to do it, they may as well take advantage of the surprise factor and cut Monday morning. " Fed 101 â The Fed does not cut rates to support the Stock Market.
With the PCE and core inflation #'s trending down over the past year along with the low Q1 GDP (preliminary GDP numbers like the one last week for Q2 mean squat if you've been keeping track of these revisions), it appears the Fed can cut if conditions further deteriorate. Unless subprime really gets out of hand, I think year the rate cutters will have to wait for more convincing data.
AHAHAHAHHAAH Tell you what, when you see the FED cut the IR, go ahead and sell 5000 NQ that moment and come back and tell us how you did. Changing the language will rally NQ 50 handles, let along cutting the rate, which may lock limit NQ higher, and ES and YM will not be far behind FWIW, I have no idea how the FED can cut rates here. It may change its language, but cut rates now? I estimate 1 chance in 10 it does so here. Chance of changing language, 50%. Watch the bonds, they will tell you the odds of a language change. FFFs will give you the odds of an actual cut. Through monetary policy the FED has already been infusing markets with liquidity as a result of the sub prime worries, which is why bonds rallied off their lows. This is in effect a mild "language change." If oil goes well below $70, and we get another slowing jobs growth number, chance of cut goes to 75%. _if_ subprime worries intensify, they go to 100%. Look at QM this morning, off a $1. Every $ QM goes lower, the more likely the FED will act tomorrow, IMO, but it won't be $65 tomorrow so it is all a mute point. nitro
Monday, August 06, 2007 12:45:00 PM WASHINGTON (Thomson Financial) - Growing evidence of a credit crunch and increased market volatility has many traders preparing for a cut in the federal funds rate some time in 2007, although economists say the Fed will not ease rates when it meets tomorrow, and could wait for several months before taking any action, if it does at all. Economists acknowledge that pressure is growing on the Fed to react to a market that is being rocked by plummeting asset-based securities, reduced access to credit, and the likelihood of reduced consumer spending due to shrinking home values. Nonetheless, they expect the Federal Open Market Committee to keep the federal funds rate at 5.25 pct at its meeting tomorrow. Still, speculation that the Fed could lower rates in the near future is rampant in light of past instances of it easing in order to maintain market stability. BMO Capital Markets Deputy Chief Economist Douglas Porter said this is a 'Pavlovian reaction' to the so-called Greenspan Put, when the former Fed chairman intervened to counter financial stress. A key question seems to be when the Fed might decide to move, and the answer will likely depend on several factors. Ethan Harris of Lehman Brothers says there are three reasons for the Fed to wait, including that the credit crunch is, at least so far, relatively contained. 'While it has been a painful period, in the past the Fed has waited for more convincing evidence of market dislocation before acting,' he said. Continued outlooks for solid economic growth and a preference to have the markets sort out problems related to the subprime sector are other reasons to hold for now, he said. Diane Swonk of Mesirow Financial said news of tightening lending standards is likely to get the Fed's attention. However, she said it is far too early for the Fed to hint at a rate cut until more is known about how the markets handle this new reality. The Fed tomorrow should be 'a little bit more neutral on bias, but there's no need to signal it's going to ease.' Others think the writing is already on the wall, and that it is only a matter of time before the Greenspan Put becomes the Bernanke Bailout. 'The Fed is bound to ease money - cut the funds rate and inject liquidity - in the face of a threatening breakdown of orderly functioning of the financial system,' said Neal Soss of Credit Suisse. And some go even further by predicting specific action later this fall. '[We] believe that the FOMC might use the September 18 meeting announcement to alert market participants to the increased likelihood of an October 31 cut in the federal funds rate of 25 basis points,' said Paul Kasriel of Northern Trust. Regarding the Fed's overall policy statement, most predict no meaningful change tomorrow aside from the likelihood that the the central bank will take note of uncertainty in financial markets. Stephen Gallagher of Societe Generale said the Fed 'needs to remain focused on the economy', and will likely reiterate its expectation of moderate growth despite housing adjustments, and note that inflation is still the predominant risk. Peter Kretzmer of Bank of America says the tight US labor market is a main reason for the Fed's continued interest in inflation, and 'remains central to the Fed's assessments.' Still, some say the Fed could note that inflation pressures have slackened. 'We believe the Fed will note that inflation pressures have eased somewhat since the last meeting ... and at least shift to a symmetric bias where growth and inflation risks are roughly balanced,' said David Rosenberg at Merrill Lynch.
I assume a cut announced by FOMC tomorrow would be inflationary in terms of prices and demand. Easing would stoke consumers while lowering the USD even more, bumping up prices of imported goods. For those reasons, it would be hard to say FED is credible against inflation if it cuts. Of course, a cut would make sense if the FED's mission is to help fix problems it helped create. The housing market is not unlike an addict in need of a fix. That's accurate for the high flying aspects of it, or the formerly high flying aspects of it.
the language should state that "the Fed stands ready to aggressively do nothing to reduce M3 growth or screw up money creation that is essential for the major banks to monetize subprime paper that they are stuck with" "furthermore, the Fed needs more time for Fannie and Freddie to purchase subprime and alt-a paper which should be completed in the fullness of time"
....which is why the 10-year barely moved while the Fed took Fed Funds from 1% to 5.25%???? Yes, you have bigguns. We're impressed. Go sell it somewhere where more than three dawgs get kilt when the front porch collapses.
The fed will cut rates? No way ! Inflationary pressures are still there and the sliding real estate market is not a good enough incentive to do so either. Plus the market still recovering solidly from the recent emotional based sell offs. Rates will stay the same.....