Monday, August 20, 2007

Fed Needs to Finish the Job

Cutting the discount rate was a nice gesture, but the market needs a a dramatic Fed Funds rate cut immediately. To wait is only to deepen the chance of a recession and create more uncertainty in the market. As I mentioned Friday, I can only attribute this lack of action on the Funds rate as to stubbornly protect a flawed Fed forecast just weeks ago forcing them to admit they have been out of touch with the real world.

Fed may have to cut federal funds rate
Most economists believe Fed will cut at or before its Sept. 18 meeting

WASHINGTON (MarketWatch) -- U.S. credit markets remained extremely fragile Monday, and observers said the Federal Reserve may have to lower its federal funds target rate to inject permanent liquidity into the market and provide investors with more assurances that the central bank will act to keep the economy growing.

Yields on short-term Treasurys plunged on Monday, evidence that fund mangers were parking their cash in the safest and most liquid assets rather than risk them in any asset backed by mortgages or even in the normally sedate commercial paper market.

The yield on the three-month Treasury fell more than a full percentage point at one point, finishing at 3.09%, down 66 basis points on the day and down about 150 basis points in a week. It was the largest decline since the day the market crashed in 1987.

By Rex Nutting, MarketWatch
Last Update: 6:03 PM ET Aug 20, 2007

Full Story Link Here

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