Posted on 10/02/2008 8:55:27 AM PDT by TigerLikesRooster
Fed officials considering further rate cuts: report
October 2, 2008 9:11 AM ET
Reuters
TOKYO (Reuters) - Federal Reserve officials are weighing further interest rate cuts, even if Congress approves a $700 billion financial industry bailout, because of a worsening economic outlook, the Wall Street Journal said on Thursday. A rate cut is still far from certain, partly because of inflation worries, the WSJ said in an unsourced report on its website.
"The Fed's willingness to consider additional rate cuts marks a turnaround from the past few months, when soaring food and energy prices turned its attention to inflation risks," the Wall Street Journal said.
Currency traders in Tokyo said that while there was some chatter about the article among market players, the impact on the dollar seemed to be limited.
The dollar index, which measures the dollar's value against a basket of six major currencies, rose 0.6 percent on the day to 80.162.
Even before the article, investors were bracing for the Fed to lower interest rates as early as this month.
(Excerpt) Read more at news.moneycentral.msn.com ...
And we were in a jam in 2001/02 because the Fed kept rates too high in 1999/2000. How many times do they have to poke their fingers in the electric socket before they get a clue? The inverted yield curve caused by fund rates that are too high is the best indicator of an impending recession there is.
Economic growth cures inflation, it doesn't cause it.
Back to 80! That was the floor not but a few months ago.
Exactly.
Japan, in the '90s is the case study for this. That's precisely what occurred over there. "The liquidity trap" (or money hoarding), as it was called.
From the early 1990s, rising unemployment, price deflation, sluggish growth, and even recession beleaguered Japan. The country's central bank, the Bank of Japan (BOJ), responded by lowering interest rates to stimulate demand. Short-term rates were gradually lowered from 8.3% in early 1991 to virtually zero by early 1999 and stood at that level for more than a year. By mid-1999, the two-year government bond rate was only 0.48% and the corporate bond rate was 0.80%.
With interest rates at historic lows the Japanese economy remained in a slump, precisely because of the issue you raise.
In many areas, housing is still unaffordable as compared to incomes.
And in an economy with wages and employment shrinking and credit tightening, housing will have to come down in price to reflect the greater risk and uncertainty in the economy (higher cost of credit) and less money (shrinking wages). The Paulson plan won’t change banks or buyers perceptions of value or the current market trend, nor will it give buyers raises or homeowners money to make up for lost wages.
Housing prices falling to fundamentals is on balance much more of a Good Thing than trying to support them at a higher point.
And if any Democrats think that "renegotiation" will convince Joe Sixpack to work three jobs in order to pay off a mortgage balance which is 40% than his house will sell for, I have a lovely condo in Miami Beach I'd like to show them.....
Correction, We have been doing that since the S&L bailout.
It’s true the worst thing would be inflation but with near zero interest why would anybody put their money in banks?
When the sailors are drunk, the money runs, then, the fights start...LOL!!
That will have a disastrous effect on what little 'health' our economy has left.
I'll say it one more time:
Congress needs to forget about this bailout bill and focus their energy on passing legislation that FORBIDS the buying of insurance on securities that the buyer does not have a vested financial stake in.
That is the only thing that will tame this monster - and it's going to take years before it does it. But at least our children will have a brighter future because of it.
That will have a disastrous effect on what little 'health' our economy has left.
Why?
Recessions are great for working out excess, lowering prices and creating buying opportunities for those with capital reserves. Maybe we will see a bottom in the next year and see buying happen again?
Because that's the psychological mindset of Bernanke when an economy is behaving the way that it is - increase easy credit and let people spend their way out of this problem.
Let's watch to see if I'm right...
In your mind, a 0.5% cut in the Fed Funds rate would cause "easy credit"? How does that work?
Let me rephrase "easy" to "more attractive".
There is no such thing as easy credit in this market - with a TED Spread hovering around 360 bp.
Good catch...I shouldn't have used the term.
Bernanke only knows to keep lowering rates to encourage more people to make efforts to get a loan. Whether those efforts succeed depends on the underlying economy.
If Bernanke lowers the rate to 0 and loans still aren't being given then we have a little bit of a problem...
You’re right.
Good idea.
There is no such thing as easy credit in this market
Yeah, that's why your original comment sounded so silly.
Bernanke only knows to keep lowering rates to encourage more people to make efforts to get a loan.
Or encourage banks to make more loans. You think banks should tighten up even further, instead?
If Bernanke lowers the rate to 0 and loans still aren't being given then we have a little bit of a problem...
If we leave rates here and loans still aren't being given then we have a little bit of a problem...
I'm running out for awhile...but wanted to throw in a last response.
You and I probably disagree as to the reason banks are hoarding their money.
I believe it's because many of them are deathly afraid of their exposure to the CMO's they've been investing in (sometimes self-sponsored ones).
They know that they're about to take an enormous hit from this entity that had been 'off the books' for them, but now will be coming home to roost.
They can either throw more money at it if the form of loans to keep the patient alive a little longer - or they can have the CMO go belly-up and have to realize the write-down on their books.
Either way, it takes cash - and lots of it.
That is why I believe that a 1/2 point rate cut will do nothing to free up liquidity in the market place. Banks are scared - and all they know to do is hoard their money.
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