agreed........a surprise cut in the first week of jan `07 in an effort to stimulate the housing market as well as the obvious.
Could you please tell me a single reason why Fed cuts rates in anything less than say 6 months? Do you really think they will change speed limits before the inflation is under their current soft limit i.e. comfort zone? Do you think they will do the same mistake again and reinflate the economy especially when outlook for global growth is better then ever? I do not care about resindential housing. It is too small part of economy (6%) and was in a bubble anyway. The healthy correction we have is needed for long term growth of this asset class. And last but not least with respect to FX (which seems to be a asset class of choice for this board). One of the major reasons the core is almost 3% is the USD weakness before 2006 - if USD floats to 1.35 or even 1.40 then import Px are going to go up - which directly affects the core - which in your view implies rate cuts...?! I am largely from fixed income - the only conclusion I would make is that significant USD weakness will mean more inversion in US (no cuts but hikes) and less inversion in EUR (less hikes). Interesting aspect is going to be oil (as ever). It will become cheaper for everybody outside US - shifting the balance even more East and pushing USD even lower with consequent investment outflows - that could ultimately resteepen the curve. It is interesting what Poole emphasized with respect to Eurodollars over the weekend - do you think that he is saying that 2 cuts priced in Sep/Dec contracts are conservative? LoL Cheers P.S. Gross is idiot.
No chance... Fed's must tame inflation which will only get worse unless they continue to hike.. Remember, we still have $60 crude, and now we will have to contend with much higher food prices (coming to an inflation report near you in Spring 2007)....
Agree, the belief that the Fed is going to cut is rather hilarious. Cutting prematurely and having such a policy for so long is what got them (and most of the world) into this situation with asset bubbles in the first place. The ECB is going to meet next week and as a previous poster said, indicate that a high Euro is offsetting inflation and that hikes will be on hold.
just not to get misinterpreted - I did not say that the recent small step out of the EURUSD range will change ECB action as early as 10 days from now - they will hike - no doubt about that. What I wanted to say is that if EUR continues to strengthen we may see some softening of the talk (e.g. dropping strong vigilance and replacing it with something less hawkish - but still hawkish). EUR rates are going to go up - it is more about the speed than direction as they are extremely low anyway. Higher EUR means slower hiking and <i>vice versa</i>.
I understood what you meant. Perhaps you did not get what I meant...I was not saying they won't hike in 10 days, I know they will. But if the EUR continues it's insane trajectory, expect the press conference to stress more "Caution on FX rates" perhaps even a "Undesired volatility..." comment.
Its great for us Brits going on vacation to the USA when its 2 bucks to the pound. But its hard for us to really appreciate that people who work the hotels are on $5.25 an hour, when our min wage in the UK is £5.35 per hour or $10.70 for ease of math!! I think "joe public main stream america " who don't travel outside the USA don't realise what happening to their currency and the wider implications it will have on their lives over the long term...?