(It won't last ......)
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)
I really wish some sound-bite savvy Republican should start blaming our high prices for gasoline on the “Democrats’ failed energy policy”.
Most Americans know that we pay waaaaay too much for oil because OPEC controls the oil spigot. Why have we given OPEC that much power over us?
Because DEMOCRATS (and few “soft” Republicans, like Shays of CT) have stymied the new oil-drilling and the new nuclear-power plants that would restore America’s historic energy indpendence.
It leads one to wonder if the the main reason Democrats are so opposed to “eavesdropping” on foreigh phonecalls might be that Democrats fear that the bribes they have taken from our Arab “friends” to block American energy independence might be exposed.
The Fed Rate isn’t tied to mortgage interest,the bond rate is.Actually,mortgage interest rates rose slightly since last month,so ya did good.
Don’t blame this squarely on the Dems.Republicans were in charge for many years and did nothing as well.It’s fun to blame them,but it isn’t simply just because of Democrats.
Don't you remember? During the Xlinton years! Everything was so rosy and perfect, it was utopia I tell ya!
Think he$$...I’m seeing it to those I know!
2) My bet would be that most hedge fund managers were diversified since that they would need cash quickly upon routine marginal calls. Figuring that, they wouldn't just have bare minimum of cash in an account to cover, they'd have it somewhere in some commodity for the long ride and could sell if needed.
3) These strategies being different between individual fund managers and their positions.
4)Therefore, with China's and India's blistering growth in their respective economies, metals, oil, and food are/were the long bets.
4)Now, were going to see less demand in the US for imports; already we're seeing it in oil as stagflation marches into the picture.
The fund managers know oil will peak soon, they're going to peel off some of the long positions and most likely move towards gold in the short term with an ounce maybe reaching $1500.
6)The US economy will slow even more until our election and the world will follow.7)Salaries, here, for the average worker will struggle in the near term until the economy picks back up in 3rd/4th qtr in 2009 with salaries on the rise.
8)All just my take really based upon Iraq's oil output coming on line (doubling) with no serious problems coming out of the ME.
For once I want to see Bernake tell Wall St. to go screw and “only” cut 0.5%.
Too True.
This is the chance to start.
You would think someone in the drive-by media would blow that horn.
I am disapointed that no one on FOX has figured it out anf started to rail on the pols. It would make some good interview material.
I agree with all your points except Iraq oil doubling. This will take a while. My wild guess is it is three years away at best. Iraq is pumping 2.4 million barrels per day and don’t forget our military must be using a lot of it
Thanks much for expanding on your ideas!
Laying new pipelines next to existing pipelines and adding new pumps will not be that difficult.
Putting in completely new supply lines will take the longer.
Most oil companies have already been working on the plans to bid on various parts of the pie, plans, people, materials, equipment, housing, security.
It's now just getting the Iraq power brokers greased and getting the contracts signed.
One thing about those in that part of the world...it's a haggling game...the Arabs, Indians, Persians, Asians all of them...it's part of their culture.
(It won't last ......)
Goldbug sells physical assets for fiat money?
?
yitbos
I hope so!
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