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)
Believe me, not only is the US wrapped in the credit, CDO, sub-prime, fiasco, so is a lot of others around the globe.
There are still many sound companies around and they are well run, make a profit and they will survive. We're just not going to see much growth, just increases in prices for everything.
I see (counting last year) a 15-20% overall increase in the Cost of Living (not housing prices but maybe rent) to settle in by middle 2009 with income and other taxes going up too as the goobermint is addicted to your's and mine's backsides and they do not know how to cut waste anymore.
Reducing the price of oil will come if they can get Iraq's production and delivery doubled...that will help, but, the US needs to get more nukes on line, open up drilling off of Fla, and the East Coast, and expand refineries.
“””I’m going to enjoy watching the goldbugs here get what’s coming to them.”””
I guess you are one of the ones that is sorry he (she) did not buy gold at $300 or $400 or $600 or even $800. I’m am sitting on massive gains from physical gold and silver that I bought in 2002 & 2003. My cost basis on silver is just a hair over $4.00 per oz and on gold $440. I just sold 10% of my silver over the last several weeks for a 500% gain. Gold I have not parted with any yet, because we are going to see a minimum of $1,500 before this runs it’s course.
Commodity supercycles typically last for 15 years or so, we’re maybe halfway into this one. Gold held it’s own yesterday, staying in the +, while other commodities sold off. In turbulent times, when margin calls are being dished out to hedge funds and retail investors alike, people will sell that which they have the most profit in, i.e. commodities.
I am fully invested in commodity miners of all varities, gold, silver, platinum, iron, coal, aluminum, copper, etc. I’m also invested in the companies that make the equipment to get the goods out of the ground, companies like BUCY and JOYG.
IMO, this trend stays in place for another 5 years or more. We have not even hit the mania stage yet, that’s when I’ll be selling, when magazine covers and the talking heads on CNBC start touting commodities, that will be the time for exit. The fact that so many, including yourself, are so skeptical, leaves plenty more room to run.
A one day profit taking move amidst global turmoil does not change a powerful trend.
All my opinion, of course. We’ll see how it pans out. There’s no way the Fed can keep showering funny money created out of thin air, without inflating commodities.
Odd statement, since it is the Fed that has been the problem for almost a century.
My dentist did some very nice work last week. I don’t see doctors. I must start a garden and you should cook some bone soup. Get some beans into it
mysterious are the ways of modern communication - how easy wisdom is lost these days....
I treid to meantion the costs of the war - that are not only high in price but also paid on debt - not with taxes - not with sales of assets - not by saving money in other areas - it’s debt. 3 trillion $ of debt.
Once the economy has digested the housing issue (with a lot of pain i’d expect) it still doesn’t mean that e.g. inflation could be fought with normal rates of interests - they HAVE to stay down and it will cause a lot of inflation.
Preople in the states will have more labour but less to buy.
Just damn...
and we refinanced our mortgage LAST month.
Doesn't really matter. Bernanke said in his famous paper and speech that they would work on the long term rates instead. They would print up FRNs and use them to buy 2 year T-Bills. Don't worry about theoretical helicopters, they have plenty of ways to inflate when the time comes.
I don’t think that Bear’s problems would have been the Fed’s problems if it had not been for the timing. If Bear had collapsed two or three years ago, the Fed’s response would have been to ignore it.
And when the next “Bear” comes along, it may do just that, depending on the timing.
Hardly. Even with a 1% cut the Fed is still way behind. And Bernanke has already shown that there are other ways to improve liquidity without lowering interest rates.
Ignoring your silly emotion of envy, I would be greatly relieved if my 10% (now more like 15%) of my portfolio in gold went poof because that would be a very positive development for the currency and the economy. Unfortunately the Fed is showing no signs of learning from past mistakes with too-low interest rates.
Fire 5 million illegal and useless federal bureaucrats, cut all taxes by 50% and the economy will boom.
THe hedge fund dudes are working OT to figure out when to make their move out of oil and gold and into other commodities...food....they all are just squirming and grinning for one more hosing before then.
Most likely May delivery (Memorial Day Weekend). Then, when they see that people stayed home in the US, Wham!!
The stampede to sell will come, and, like you said, gold will follow.
What is the answer to our self inflected financial wounds?
If we just announced that we were going to allow drilling everywhere there was a chance to find oil in the USA prices of oil, gasoline, diesel food and mortgages would decline and the dollar would skyrocket.
We could actually be self reliant for about 20 years on known reserves. Bear in mind that the Governments (State Local and Federal) control 56% of the land mass of the USA. Most of it being off limits to exploration and production.
Cuba is drilling closer to the Florida coast than we can. That field has potential to be a huge find that extends into US waters. We should be competing in our own back yard.
Gasoline and Diesel stocks are at a higher level than they have been since 2001. Crude stocks are at a high level as well. Many economies are down bringing demand down.
There seems to be between 20% to as high as 40% of speculation built into the current crude prices.
With an imbalance in supply and demand supported by speculation you can count on large swings when additional supplies are rumored to be forthcoming.
We just need a few politicians with a set.
God! We Are Doomed!
It’s called: “Forcing the new World Order up our Backsides”
American's standard of living is out of proportion with the rest of the world. That is going to change in the next 20 years. All those choices that we have now in our lives are slowly being taken away. The middle class in this country is evaporating fast.
Think that is not happening?
You forgot to add “global warming” costs to your list...
THe hedge fund dudes are working OT to figure out when to make their move out of oil and gold and into other commodities...food....they all are just squirming and grinning for one more hosing before then.
Most likely May delivery (Memorial Day Weekend). Then, when they see that people stayed home in the US, Wham!!
The stampede to sell will come, and, like you said, gold will follow.
#1--Are you dead serious about this or are you shooting your mouth off? No insult intended. I'm very interested in your take
#2 As far as I can tell hedge funds don't mess with gold much. Maybe silver though. So they kill gold indirectly by being forced to unwind oil, natural gas and other energy positions.
And they are forced to unwind when they get margin calls due to easy credit being cut off. BTW Bear did many thing and one thing was providing easy credit to the hedgers
#3 Based on what kind of POS collateral are the hedge funds still getting credit?
The current rate is 3%... A 1% gives them 2%, unless they wish to give money away.
All true plus our (USA) years of trade deficits are impacting hard. While Germany runs trade surpluses. You still have nation pride and are not degenerate borrowers
Our nations pride is not the question. I guess especially in germany there’s a lot of people having difficulties to identify with anything allegedly beeing german of nature.
You know - we lost two wars - but that’s not the problem. Some of our former leaders believed, that industrially killing innocent people was a good idea - I guess that has cost us at least a century of easy national identification.
That is, what’s beeing rebuild at the moment - hope we come up with something of style and not of monstrosity.
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