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Fed set for big rate cut amid market turmoil (1%; helicopter Ben ready)
Reuters ^ | 03/18/08 | Mark Felsenthal and Christian Plumb

Posted on 03/17/2008 10:45:00 PM PDT by TigerLikesRooster

Fed set for big rate cut amid market turmoil

Tue Mar 18, 2008 12:55am EDT

By Mark Felsenthal and Christian Plumb

WASHINGTON/NEW YORK (Reuters) - The U.S. Federal Reserve is expected to slash interest rates by as much as a whole percentage point at its policy meeting on Tuesday as investors warily await investment bank results that could aggravate fears of a full-blown markets crisis.

Traders expect the Fed to cut rates by a full percentage point in an effort to stop hemorrhaging in financial markets and boost the flagging economy. The Fed is expected to announce its decision around 2:15 p.m. EDT.

The Fed has cut overnight rates by 2.25 percentage points to 3 percent since mid-September as a rise in defaults on subprime mortgages has escalated into a financial crisis that this weekend claimed one of Wall Street's most venerable firms, investment bank Bear Stearns, as a victim.

While financial markets expect the Fed to fire off its biggest rate cut since 1982, they might focus more on the quarterly results due hours earlier from Goldman Sachs Group Inc, the most profitable U.S. investment bank, and Lehman Brothers Holdings Inc, the fourth-largest.

The banks are expected to show how badly they were hit by the credit crunch in the three months ended February 29 -- and any major shocks could send markets into another tailspin, especially given the vulnerability of the financial sector exposed by the fire sale of Bear Stearns to JPMorgan Chase.

The Fed has already taken a series of radical steps in an attempt to stabilize the financial system.

It narrowed the gap between the discount rate -- the rate at which it lends directly to banks -- and the federal funds rate, the overnight rate banks charge each other for loans and the Fed's main policy tool, from three-quarters of a percentage point to a quarter point.

The U.S. central bank also unleashed a barrage of other unorthodox steps to provide liquidity, including $30 billion in financing to enable JPMorgan to buy Bear Stearns. In addition, it set up a new program to provide cash to a wider range of big financial firms through loans at the Fed's discount window.

INFLATION ON BACK BURNER

Against the market upheaval, fears that a seizing up of the financial system could plunge the U.S. economy into deep recession have overtaken worries about inflation fueled by high oil and commodity prices.

"With the recent market turbulence, those inflation concerns are now taking a backseat, and the (Fed) has to think about the action that not only is appropriately aligned with the forecast but that also supports financial markets at a time of extraordinary turbulence and systemic risk," Laurence Meyer, a former fed governor now with forecasting firm Macroeconomic Advisers, said in a note to clients.

The Fed has focused efforts in recent days on surprise steps to make funds available to banks and Wall Street firms, offering hundreds of billions of dollars in auctions and credit to thaw frozen credit markets.

Policy-makers may have hoped that recently announced emergency actions, such as expanded cash auctions for banks and the extension of credit to a wider array of Wall Street firms, would remove the need for a deep interest rate cut. But officials will have to take stock of gloomy data on hiring, factory output and retail sales.

Lehman, whose shares closed down 19 percent on Monday on concern that it is the most vulnerable to troubled mortgages and leveraged loans next to Bear Stearns, is expected to report its quarterly earnings tumbled 63 percent, according to Reuters Estimates.

Goldman Sachs, which in previous quarters succeeded in escaping the worst of the subprime mortgage crisis thanks to some well-timed short bets on subprime debt, is also expected to have run into tougher times over the past few months.

Goldman, Wall Street's top brokerage by market capitalization, is expected to report earnings fell by more than half from the year-ago quarter.

And if Goldman and Lehman earnings weren't enough drama for one day, the market will have another major event to chew on late in the day: Visa Inc's initial public offering, the largest U.S. stock flotation ever.

(Editing by Leslie Adler)


TOPICS: Business/Economy; News/Current Events
KEYWORDS: 1percent; bernanke; economy; fed; ratecut
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There would be another crisis on the scale of current Bear Stearns problem sooner than later. Fed may need a bigger gun, then. What would that be? What they are using now is big enough already.
1 posted on 03/17/2008 10:45:00 PM PDT by TigerLikesRooster
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To: TigerLikesRooster; Uncle Ike; RSmithOpt; jiggyboy; 2banana; Travis McGee; OwenKellogg; 31R1O; ...

Ping!


2 posted on 03/17/2008 10:45:28 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

I think the Fed is part of the problem this time around, as is a certain former Fed chairman. They have overreached and panicked markets into a much worse situation than was coming if they had allowed the housing market to crash on its own stupidity. They’ve shot nearly every bolt they have. A 1% cut gives them, I believe, only 2.5% more to work with.


3 posted on 03/17/2008 10:49:18 PM PDT by Ingtar (Haley Barbour 2012, Because he has experience in Disaster Recovery. - ejonesie22)
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To: TigerLikesRooster

I’m going to trade my dollars in for pesos soon. I need a secure investment.


4 posted on 03/17/2008 10:52:48 PM PDT by Tempest (I'm a Christian. Before I am a conservative.)
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To: TigerLikesRooster

It would be hilarious if rates were actually raised or left unchanged. I can just see the panic.


5 posted on 03/17/2008 10:58:17 PM PDT by utherdoul
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To: utherdoul

Ambulances will be busy hauling collapsed traders from NYSE to hospitals.:-)


6 posted on 03/17/2008 11:00:32 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

This is all just a bunch of political manipulation. They want a 2008 version of “It’s the economy, stupid.”


7 posted on 03/17/2008 11:00:37 PM PDT by advance_copy (Stand for life or nothing at all)
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To: TigerLikesRooster

What’s the word on Asia this morning?


8 posted on 03/17/2008 11:16:56 PM PDT by durasell (!)
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To: TigerLikesRooster

Is it possible to lower rates below zero?


9 posted on 03/17/2008 11:20:21 PM PDT by Republic of Texas (Socialism Always Fails)
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To: durasell

Mixed. Nikkei up, others down, last I checked anyways.

I hope that the chicken littles here yesterday have learned something. People were on here yesterday predicting a four thousand point drop, etc, etc.

What we have here is a mess that’s working its way through the system. To use a crude but probably accurate analogy, lowering the rate by a percentage point is kind of like a laxative for the financial system. It’ll get everything flowing through again, and it’ll blast out what’s been accumulating.

What some of you are missing is that this hitting Bear Stearns and others is, in many ways, a good sign - so long as the Fed manages it correctly. That means that the trouble is working its way through the system. Debt is being repriced.

The Fed acted in exactly the correct way on this one. They stepped in to prevent a panic, but they also didn’t try and stop Bear Stearns from paying the price for its irresposible behaviour.


10 posted on 03/17/2008 11:21:22 PM PDT by furquhart (John S. McCain for President)
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To: durasell

Most Asian indexes look pretty good, but Chinese ones are down quite a bit (between 4 and 8 percent down on various China indexes).


11 posted on 03/17/2008 11:21:24 PM PDT by familyop (Worthless male weekend warrior has-been trash with no degree.)
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To: durasell

Don’t post any content from it (prior copyright complaint).

http://www.bloomberg.com/markets/stocks/wei_region3.html


12 posted on 03/17/2008 11:23:14 PM PDT by familyop (Worthless male weekend warrior has-been trash with no degree.)
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To: Republic of Texas
Not in theory. However, if the going rate is lower than inflation rate, the real interest rate is essentially negative.

That is, if the current interest rate is 2% and the current inflation rate is 3%, then the interest rate is effectively negative.

13 posted on 03/17/2008 11:23:50 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: furquhart

I agree with most of what you wrote — though I believe the situation is much more tricky than that. This is not smooth sailing by any means.


14 posted on 03/17/2008 11:24:33 PM PDT by durasell (!)
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To: TigerLikesRooster

/sarcasm


15 posted on 03/17/2008 11:24:35 PM PDT by Republic of Texas (Socialism Always Fails)
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To: TigerLikesRooster; Uncle Ike; RSmithOpt; jiggyboy; 2banana; Travis McGee; OwenKellogg; 31R1O; ...
Rescue Puts Credibility of the Fed on the Line



All Eyes Will Be Watching Fed Chairman Ben Bernanke

16 posted on 03/17/2008 11:43:44 PM PDT by ex-Texan (Matthew 7: 1 - 6)
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To: TigerLikesRooster

While it may help the big banks, it will probably not translate into lower rates for consumers, and it certainly will translate into a more quckly falling dollar. The best reaction to this for normal people would be for people to move into an export related job.


17 posted on 03/17/2008 11:49:32 PM PDT by Vince Ferrer
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To: durasell

Smooth sailing? No. But when is it ever?

Hillariously, the next step is the popping of the oil and gold bubbles. As much as I hate to say it, I’m going to enjoy watching the goldbugs here get what’s coming to them.


18 posted on 03/18/2008 12:00:13 AM PDT by furquhart (John S. McCain for President)
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To: furquhart

Smooth sailing? No. But when is it ever?


1950 to 1973 — a span of time that people oddly and naively believe was “normal.”


19 posted on 03/18/2008 12:07:58 AM PDT by durasell (!)
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To: furquhart
"I’m going to enjoy watching the goldbugs here get what’s coming to them."

They'll all claim to have sold at the top.

yitbos

20 posted on 03/18/2008 12:09:28 AM PDT by bruinbirdman ("Those who control language control minds." - Ayn Rand)
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