Posted on 09/17/2007 5:59:18 PM PDT by shrinkermd
When the Federal Reserve meets today, a cut in its main short-term interest-rate target, the federal-funds rate, won't be the only thing on the table. Officials will also have to decide what action to take on the lesser-known discount rate, at which banks borrow directly from the Fed.
Normally, banks pay a "penalty" to borrow from the Fed's discount window of one percentage point over the target for the federal-funds rate, at which banks lend to one another in a market heavily influenced by the Fed. Banks seldom borrow at the discount window because they can borrow federal funds more cheaply. The direct loans also have carried a stigma because they were often a last resort for troubled banks.
On Aug. 17, in a bid to improve the flow of cash to clogged credit markets, the Fed cut the discount rate to 5.75%, a penalty of half a percentage point above the 5.25% federal-funds target. It also extended the term of such loans to as long as 30 days from one day, and declared that using them would be regarded as a sign of strength, not weakness.
Many on Wall Street feel the Fed has yet to make the discount window attractive. The actual penalty, they note, is larger than the normal half point because the Fed has allowed the federal-funds rate to fall to 5%, a quarter point below its target. Many market participants recommend that the Fed cut the discount rate so it sits just a quarter point above the fed-funds rate or even matches it.
(Excerpt) Read more at online.wsj.com ...
With gold at 720/oz and oil at 80/bbl? That would just help create another bubble.
Dont forget the dollar trading at an all time low against the Euro.
Here’s what Greenspan was reported to have said and reported recently in USA TODAY (excerpted):
“At some point, the flow of people into the workforce in developing countries such as China, which has seen a movement of workers from farms into factories, will slow, leading to stronger wage pressures and prices, he says. The impact will be global.
And the shift “may be upon us sooner rather than later,” he says. Evidence: Prices of Chinese imports coming into the USA started rising earlier this year. That suggests that in the “next few years,” inflation will build unless action is taken.
In an interview Friday afternoon, Greenspan said that double-digit rates, which haven’t been seen since the 1980s, will not be a long-term fixture.
“Double digit is something that is likely to happen for a short period of time,” he says, saying it’s hard to predict when such a big rate increase will be needed.
Does Greenspan think it’s bad to cut, when he thinks rates will need to be twice what they are now?
“I think that that question is one of the reasons why, when people say that the Bernanke Fed goes at a crisis differently than the way I did, they are missing the obvious point,” he tells USA TODAY.
“It was far easier for me to cut interest rates in a period of very low inflation … than a period like now when you have to be seriously concerned about it,” he says.
http://www.usatoday.com/money/economy/fed/2007-09-14-greenspan-book_N.htm
I never seen so much media coverage in a short period of time demaning rate cuts. The Feds needs to keep on the same path. Someone with a lot of power and money on the line sure want to influence a rate cut.
If a man of principal, he stands pat.
>> Someone with a lot of power and money on the line sure want to influence a rate cut.
Hint: it’s the same bunch that thinks amnesty for illegal immigrants is just A-OK.
(A: the land-developer/housing construction/landscaping/realtor/mortagebanking/realestatespeculator “complex”.)
A LOT of pressure on Bernake. I hope he send one message.
NUTS.
I see no federal fund cut and a discount rate cut.
He is a helicopter pilot, you know.
Just saying.
OT: This dang server is slooooooww.
what is with this guy?....we had too low interest rates for too long and that is why every Tom, Dick, and Harry went on a real estate buying binge, only to discover that the emperor had no clothes....
One thing is for certain, Bernanke has his hands full.
Volcker may be much maligned but he did break the inflationary spiral! Hopefully, Ben is up to the task (though, personally, I would profit (temporarily) if he cuts and cuts.....
That's more or less been the only job of the FOMC for the last twenty years, just keep throwing money at a problem and then pretend that there's no bubble being created.
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