It just shows how high the pressure on the FOMC is, if they have to peremptorily act one week ahead of their regularly scheduled meeting.? Again, one week doesn’t matter much in terms of actual policy impact.
Yet, they may do more at their meeting.? Though I called for a 3.00% Fed funds rate in 2008, I wasn’t thinking of the beginning of the year… more like the middle-to-end.? Now it seems to be a first quarter phenomenon.? And, as I have said since the beginning of this move, given that the FOMC has been willing to use crude policy tools like the Fed funds rate to try to reflate areas where credit stress is high, they will overshoot.? The lags in the action of monetary policy versus the immediacy of political pressure forces the overshoot.
My questions: how low do we go with the Fed funds rate, and how much will price inflation run in the process?
Krugman suggests Helicopter will be “maintaining a sufficient inflation buffer and easing preemptively as necessary”.
so what do you think, 25 or 50 next week?
My guess is 50, but I’m still thinking about it. They have consistently overshot on this loosening cycle.
David, I believe deflation is here. Fed funds will probably approach 2.00%. I believe this year there will be nowhere to hide. I think 10yr treasuries will be the best performing asset class this year.
Here’s an ironic consideration. What if these rapid rate cuts further impair the banks?
The most precarious ones have been advertising very high CD rates and from what I’ve seen have actually been successful in attracting capital to shore up their Tier 1 ratios. But it seems these rapid and deep rate cuts are going to hammer their net margins. And they were counting on net margins to fund the work-outs.
And as for it helping to refinance the dodgy debts into new loans, I don’t think they’ll be able to. Underwriting is much tighter and the people you want to refi still won’t be able to. So you’re left with prime borrowers looking to lower their rate, which again is going to be bad for net margins.
The banks had a hard short squeeze today, but for the likes of Downey, Bank United, WaMu, and their ilk I don’t see it helping. I also wonder if it hurts more than it helps banks that are expected to be survivors like Wachovia and Bank of Am.
As for the Fed’s new role as down-side market circuit breaker, I’m less than impressed. They don’t realize it, but they are burning through a lot of respect. I believe Bernake’s also made comments about the risks to the “system” should the public determine the Fed is impotent. If they don’t have signs of a perking-up economy really soon, we will be headed down that path.
Another thought since there seems more interest (not here, but other places) in gaming the market’s response to the Fed, than the actual economy’s: the market runs up 5% from here to month end. Then gives it all back after the Fed cuts “only” 25 or 50 at their next meeting.
Sell the news indeed.
hmm, well, GLD liked that cut a LOT.
I’m tempted to say “that’s all we need to know”. $USD = TP
> My questions: how low do we go with the Fed funds rate, and how much will price inflation run in the process?
These are the questions I came to this blog curious about!
I say 50 pt drop, a lot of uncertainty this year, not much inflation. GLD is looks good to me as an investor, tends to do well in troubled times.
Wow. We’re already halfway to “up 5% from [yesterday] to month end”.
No, I’m not positioned for it… I’m getting slammed by what I believe to be short squeezes in dodgy bank stocks. I’m in long-dated puts, so I’m not subject to margin calls and sqeezes, but it still is increadibly unpleasant.
This talk of nationalizing dodgy mortgages disgusts me. Why don’t we nationalize the golden parachutes of fired CEO’s!