Informal Poll - Will FED cut interest rates this week ?

Discussion in 'Economics' started by wirelessbull, Feb 26, 2001.

  1. My vote is no. It will be interesting to see how the market reacts if that is the case. If a surprise rate cut actually does occur - I'm curious as to the degree the news has already been discounted by the market. What are trader strategies in times like this ? ;)

    Market Chatter Aside, Don't Count On an Intermeeting Rate Cut
    By Justin Lahart
    Associate Editor
    2/26/01 3:49 PM ET

    In recent days the market has been alive with talk of the Federal Open Market Committee doing another intermeeting rate cut. But don't hold your breath.

    On a number of occasions last week, there were rumors that the Fed was in the midst of an emergency meeting, that trouble in Turkey (where there is a currency crisis) would provoke a quick move, that an unnamed "Bermuda-based" hedge fund had blown up, again pointing toward a surprise easing.

    The talk picked up in earnest Friday afternoon, when Bear Stearns chief economist and former Fed governor Wayne Angell put the odds of a cut before the scheduled March 20 meeting at 60%. That comment revived U.S. stock markets, turning a sharp Nasdaq decline into a mild rise. Monday, Angell was back at it, boosting the odds of a surprise rate cut to 80%, as stocks once again rallied. The March fed funds futures contract, which trades off expectations for the fed funds rate, continues to weigh heavily toward an intermeeting cut.

    Nothing has quelled the speculation. Never mind that Turkey's troubles don't seem to have had too much of an effect elsewhere, that no hedge fund troubles emerged, that Angell, on a conference call Monday, gave little reason for an intermeeting ease other than that the price of gold remains stubbornly low.

    Just the Facts
    Market expectations aside, many Fed watchers see little compelling evidence for the Fed to ease ahead of March 20. If you run through the economic data that have come out since the Fed's January meeting, you'll see that most have come in stronger than forecasters expected. On top of that, there has been a surge in corporate bond issuance and mortgage refinancing activity. Meanwhile, spreads between corporate debt and Treasuries have come down, and the Treasury yield curve has steepened. All these things indicate the Fed's cuts are having an effect, reducing the likelihood members will feel the need to make another pre-emptive move.

    In fact, the only thing that's really weakened significantly since the last Fed meeting is the stock market. The S&P 500 has slipped 8.4%, while the tech-stuffed Nasdaq has dropped a whopping 22%, touching lows it hasn't seen in over two years. The Fed hasn't acted on that drop so far, however, suggesting it would take a deeper selloff in stocks, or some nasty economic data, for it to move.

    "The Fed would like to avoid another intermeeting cut," says Banc of America Securities chief economist Mickey Levy. "If the stock market absolutely collapses, or the economic data collapse, then they might, but I think they want to avoid it."

    Intermeeting moves by the Fed are rare. Since it moved toward being more open in 1994, the Fed has cut between meetings only twice -- in the aftermath of the Russian debt crisis in 1998 and this January. This rarity has made intermeeting moves much more forceful -- they send a message to the market that the Fed intends to be much more aggressive than usual. If the Fed went intermeeting more often, however, that forcefulness would wear off.

    "I think they want to save these things for really significant and important times," says J.P. Morgan Chase chief market analyst Don Fine. "It's a matter of keeping the gunpowder dry."

    Big Talk
    If it's merely a matter of assuring markets that it is on the case, the Fed has other tools at its disposal. Chairman Alan Greenspan speaks before Congress on Wednesday, and again on Friday this week. Wednesday's testimony before the House Financial Services Committee was to have been a rehashing of what he said before the Senate a couple of weeks ago, but the Fed has let it be known the chairman is revising his prepared remarks. With only three weeks to go before March 20, it might make more sense for the Fed to signal it remains aggressive than to cut now.

    "The closer we get to the Fed meeting, the greater degree of stress is going to be required to get the Fed to go," points out Credit Suisse First Boston economist Mike Cloherty. Sure, that stress could indeed present itself -- a big selloff in stocks or a nasty Purchasing Managers' Index on Thursday could do the trick. But investors pinning their hopes on the Fed cutting rates before its next scheduled meeting had better be ready to be disappointed.

  2. I believe that there is a good chance of another intermeeting cut. Greenspan must know by now that he single handedly murdered a perfectly humming economy in one of the most insidious policies ever seen, and must take drastic actions to make up for the slew of unnecessary rate hikes from last year. However, being the financial arch conservative that he is, he may choose instead to wait until the March meeting. Here is my personal opinion on how things play out both ways:
    If we get the intermeeting cut, the market will rally for a few days, and then pull back. That pull back would be a perfect buying opportunity, as the new round of rate cuts would set the economy up for a recovery sooner, and with some great stocks down 50, 60 and 70%, the downside risks are minimal.

    If there is no intermeeting cut, I don't think there would be a crash, but a gradual slide back down to previous lows. I believe that this again would be buyable, as the Fed MUST cut at the March meeting, and the market would move back up into that meeting.

    For me personally, I'll continue to daytrade on a limited basis, but overall am keeping most of my money on the sidelines until the next Fed meeting, when I'll probably start buying good stocks with guns blazing. I think we're close to seeing a bottom (at least in the NAZ) that will present one of the best buying opportunities of our lifetime.
  3. white17


    I must agree with you ZBOY; I don't look for an intermeeting rate cut because I don't think AG wants to be seen as responding to the market or in a state of panic. I do believe that a rate cut is already priced into the market and whether we get an actual early cut or not the market will drift lower into the March meeting.

    From a market standpoint I don't really care one way or the other. I don't care which way the market moves as long as it does so. That;s why there are both puts and calls.

    I think you're right again that a real buying opportunity lies in the near future.

    Best to all
  4. I don't think he cuts. Just because of that wayne angell guys priced it into the market by now. So if he cuts intrameeting and we don't have a monster rally, or even go down, It will show the overseas investors that the fed is powerless and irrelevant. And then we could seriously tank.
  5. p2


    I would be surprised on a cut as well, I tend to agree with white17's sentiment. But that being said, it appears that the market has already priced in a potential of an intrameeting rate cut yesterday, based on Wayne Angell's comments.

    And if the Fed does cut intrameeting, I'm not so sure if we would see a monster rally as praetorian2 hopes. I think there is a lot of people who are already pricing in a cut. I believe that the old axiom "Buy on the rumour, Sell on the news" (or however that goes) applies to this situation.

    But then again who really can say what will happen. Otherwise, none of us would be hanging around these forums looking for ideas :D
  6. Despite the fervor for another intermeeting interest rate cut, the probability still appears quite low IMO. I just hope Greenspan provides commentary today that gives investors some sense of optimism looking forward. Otherwise, it's a scary thought as to how a disappointed market will react especially when combined with the daily onslaught of negative news. Perhaps Wayne Angell will increase the probability of another interest rate cut this week to 90 % and spark another rally - just kidding. One thing for sure - some compelling buying opportunities are being created and it's only a matter of time before big (and small for that matter) money enters the market full force. :cool:

    Market Mob Closing In on Greenspan -- Cut Now!
    By David A. Gaffen
    Staff Reporter
    2/27/01 4:22 PM ET

    By the time Alan Greenspan sits down to speak to a House committee tomorrow, it's not silly to think there could be a mob of people outside the Federal Reserve's building with rakes, torches and other assorted farm equipment, sort of like in the 1980s, when the Fed declared war on inflation.

    Or that scene in Frankenstein when, apparently, the whole town had nothing more to do but show up at that castle armed with torches. (Come to think of it, that'd be pretty cool.)

    This time, though, they'd be stock traders, bellowing for Greenspan (when he addresses the House Finance Committee tomorrow morning) to administer another rate cut as an elixir for the market's recent travails.

    The calls for another cut in the fed funds rate from the market, currently at 5.5%, have grown louder by the day. They were heightened by the unusual occurrence of the Fed's spokesperson yesterday saying Greenspan will be revising his testimony to the Senate, which he gave two weeks ago. Typically, this speech is little more than a standard reiteration of what the Fed boss has told the Senate in his appearance before that body.

    Now, though, Greenspan's likely to talk more glowingly about the possibility of rate cuts, although, like other Fed officials, maintain the stance that the economy is on the way to recovery.

    It's a fine line he has to walk -- make it sound like the Fed's doing its job without causing a panic.

    But it's also a line he and the other Fed officials have been following with little wavering lately. If you notice, most of the recently stumping Fed officials sound uncannily like one another these days. That runs from the most hawkish, that is, those who would be looking for the most restrictive policy, like Richmond Fed President Al Broaddus, to the most dovish, like Dallas Fed President Robert McTeer, who would be looking for the most relaxed, or easiest policy.

    Generally, as's Fed scorecard shows, this gang has decidedly different views. And though they say their opinions are their own, lately they're all maintaining that the economy isn't falling apart, while still cautioning that they're at the ready to prevent further deterioration.

    <b>Along those lines, McTeer's comments last night seemed like a refutation of current market sentiment, as well as of economists banking on a rate cut before the week ends. He said that unless the need for a rate cut is "obvious and great ... I think there is a preference to make monetary policy at regularly scheduled meetings."

    That statement alone should probably give the market enough sense to realize that barring a massive decline in Thursday's National Association of Purchasing Management's index or a tremendous plunge in stocks, the Fed is likely on hold until March 20. (It also sounds like a jab at Bear Stearns' economist Wayne Angell, the former Fed governor, who yesterday conjectured an 80% chance of a rate cut later this week.)</b>

    Fed cuts generally have long- and short-term effects. Long term, they improve conditions by making borrowing easier, which allows consumers and companies to spend more money. Most immediately, they can restore confidence to consumers, and especially in the stock market.

    "One of the Fed's jobs is to keep a bigger perspective than the markets do," said Suzanne Rizzo, economist at MFR. "When you're actively involved in the markets and the market is going down, it's hard. You want more liquidity until that's converted to inflation and then you're unhappy."

    If Fed rate cuts take six to nine months to work their way into the overall economy, thinking about the longer-term factors is useless now -- there's meager evidence showing whether they're making a difference a month later, although there's some money supply statistics showing improved liquidity.

    Then, there's that last factor -- the stock market, which has indeed deteriorated. It went a little nuts in January after the Fed shocked everyone, but lately it's gotten it into its head that its recent problems are justification for a further cut. But if it takes six to nine months for material improvement in the economy, cutting now does nothing for the Fed except make stock traders feel better.

    That only worked temporarily after Jan. 3, and the Fed doesn't even have the shock factor on its side anymore. A bunch of public proclamations has put a stop to that.

    For example, Fed Vice President Roger Ferguson -- viewed as something of a moderate among the Fed governors -- took the unusual step of questioning how consumers' assessment of the future affects current spending in a speech today.

    Ferguson noted that the fall in consumers' assessment of the future seems to "have some limited predictive ability for future household spending." And Greenspan's past efforts in talking down the market haven't done much either. (Raising rates initially didn't do it either -- it only kicked in when energy prices and the plunge in technology spending took hold.)

    Besides, one has to wonder whether the market is expecting additional cuts if the Fed cuts by 50 basis points this week. The Fed is most certainly going to cut rates March 20, if not sooner, although the latter is receding as a possibility .

    "I think in general they believe they've already moved pretty aggressively, and I think they're all set to go again at the meeting," said Josh Feinman, chief economist at Deutsche Asset Management Americas. "Then, they'll say '150 points -- it's not like we're falling asleep at the switch.'"

    Another cut now strikes some as potentially dangerous, because it's predicated largely on the stock market when the Fed will still get several important economic releases prior to the meeting, which takes place in three weeks.

    By then they might be catapulting people over the walls at the Mariner S. Eccles building in Washington.

  7. white17


    Just a post script to my earlier posting: Although AG has surely done a better job than I could have, I believe the final 1 point increase in rates last year was a product of AG's ego. It seems to me that he tried for a long time to talk the market down as well as use rate increases. When neither of those things worked he figured " ok you guys take this one" and here we are. Personaly I believe he went way too far. Anyhow, I don't think he wants to be seen fighting the market or caving in to it........more of his ego.
    Hopefully the mother of all buying opportunities is on the horizon.
  8. To follow up on white's point, I absolutely agree regarding Greenspan. In fact, I think he should be ridden out of town on a rail. As a trader, I take what the markets give me, but what about all the people about to retire whose IRA's or retirement funds have been cut in half and will have to work an extra few years thanks to AG? Let's recap what this man did to our economy:

    At the end of 1999, everyone was worried about the "Y2K" bug. So Greenspan pumped billions of dollars of cash into the banks and financial system in case there was a run on banks due to Y2K problems (thereby creating <b>true</b> inflation, i.e. an increase in money supply). Well, as we all know there was no bug, no glitch, barely even a clock out of sync. So now the financial institutions were sitting with all this money and thinking "What should we do with it?" Well, they threw it into the market, and we saw the NASDAQ run up from under 3000 to over 5000 in 3 months. Greenspan, in his ultimate arrogance, felt it was his job to bring the markets back into line and fight the perceived inflation threats (which he himself created with all that money he threw into the system!!). What he failed to realize, as any student of market history knows, is that the market has always corrected and equalized manias and excesses on its own without needing a Fed to do it.

    So AG threw billions of dollars into the system, while at the same time shoving rate hikes down our throats--talk about twisted policy. Even after the NASDAQ crashed and the irrational bubble burst, he still kept throwing those rate hikes. Instead of letting the market straighten itself out and the economy be okay, Greenhead kept pushing until we went from a growing and stable economy to a recession, akin to driving a car from one guard rail straight into the other. Well done, Alan. You should be very proud of the hundreds of thousands who have lost their jobs and many more whose retirements have been pushed back.
  9. If there was ever a time to cut interest rates, now is the time. Assuming of course the FED wants to do everything possible to avoid a recession. It's just my opinion but I think psychology is at play here... the FED doesn't want to appear to be reactive in any manner. Thus - do nothing for the next three weeks. Ultimately, it's probably a bad decision and the market knows it.

    Jobs, retirement, stock market - be dam*ed - nobody tells AG what to do. Got that !! :rolleyes:
    Hey Alan, three weeks is a long time
    Lots could happen before next Fed interest rate cut
    By David Callaway, CBS MarketWatch
    Last Update: 1:24 AM ET Mar 1, 2001

    SAN FRANCISCO (CBS.MW) - Three weeks is a long time.

    The Dow Jones Industrial Average (INDU: news, msgs, alerts) fell more than 450 points in the last three weeks. The Nasdaq also fell about 450, a whopping 17 percent for the tech-heavy index. It's now at levels not seen since the end of 1998. More than 50,000 layoffs have been announced in the last three weeks.

    And yet, Fed chief Alan Greenspan indicates the central bank probably won't cut interest rates before it holds its next Federal Open Market Committee meeting on March 20.

    Greenspan said that while consumer confidence has weakened, consumers "have retained enough confidence to make long-term commitments."

    Retained confidence? Has he seen the consumer confidence index chart lately. It looks like someone leaped off a diving board.

    Look at all those tech stocks at or near 52-week lows. Cisco, Oracle, Sun Micro, Hewlett-Packard. Remember Yahoo (YHOO: news, msgs, alerts) ? It wasn't long ago that people were calling it a screaming buy because it dipped under 100. Three weeks ago it was at 33. Wednesday it closed at 23.81.

    Now, maybe the old "Maestro" was simply giving us all a head fake. You know how the Fed hates to be predictable. It can't let the markets rule its behavior.

    Another intermeeting rate cut now would look like the Fed is simply following the markets, rather than leading. And what if it didn't work? Then the Fed has lost its power altogether, an ominous scenario global investors don't even want to think about.

    It's true that it will take more than just lower interest rates to bust us out of this recessionary funk. It will take more than a tax cut. A catalyst is needed, as I've said. And every day that goes by without one, the Nasdaq slips closer toward 2,000.

    The money is there. Investors would love to buy Cisco at 24, or Intel at 28. Or even Yahoo, maybe. But having cautiously entered back into the fray in January and watching a third of their new investments get savagely wiped out in February, no one is ready to stick their neck out again.

    The term "Nikkei" sputters from the lips of the more nervous types. That's the Japanese index that fell below 13,000 on Wednesday to a 15-year low. In 1989, the Nikkei topped out above 39,000. But it plunged soon after and has never come back.

    If ever there was a case to make that lower interest rates don't work, it's in Japan. After the market closed, the Japanese government lowered its discount rate to 0.25 percent and its overnight call rate to 0.15 percent. You can't go much lower than that. And still, nothing.

    Of course, our economic situation isn't nearly as dire as it is in Japan. Nobody is predicting a generation-long decline in stocks -- yet. But some strategists are now saying it could be two or three years before this bear market plays itself out.

    I don't think so. We may go below 2,000 in the Nasdaq before this is all over, but by the second half of this year we will be higher than in January. A tax cut and more rate cuts won't do it alone, but they will be a good start.

    President Bush is definitely doing his part. But Greenspan is walking a very delicate line. If he doesn't cut rates aggressively - such as from 5.5 percent to 5 percent on the Fed funds rate - and he is wrong about the depth of the economy's problems, then he will have to take even stronger steps come April or May.

    And if you think a lot of damage can be done in three weeks, you won't have seen anything yet.

  10. After being the Fed chairman for the past 20 years, I think Alan Greenspan has worn out his welcome.
    Here is a person who took it upon himself to slow down a well oiled economy just because he THOUGHT that inflation COULD be problem down the line. Now that we see REAL signs of trouble in our economy, he decides to WAIT to see how bad things can go before he will take the appropriate measures
    to right the problems that were his own making in the first place.
    I think this pervert is too far removed from reality to know what kind of effect his irresponsible, egotistical decisions have on the ordinary, hardworking people of this country.
    #10     Mar 1, 2001