Saturday, September 15, 2007

Roll the dice: 25 or 50?

As the Fed prepares to make one if it's most important policy decisions under Bernanke, I'm elated that we are at least seemingly locked into a rate cut which I have been clamoring for months. Unfortuantely, I don't think the Fed will take out the insurance policy necessary by cutting 50 basis points this week. They will again, continue to fall behind the curve of the economic slowdown and most likely take it 25 basis points at a time. This will be a defacto rate increase as the effective Fed Funds rate has been hovering below 5.00% and the market and the economy will be disappointed. We can only hope for more cuts sooner rather than later.......

Economists predict/debate on WSJ economics blog.........

Economists Debate: A Quarter Point or a Half?

This Tuesday, the Fed is expected to lower the target for the federal-funds rate — therate at which banks lend to each other — for the first time in over four years. The key question is how much will the Fed cut? Economists preview the rate decision, and what they expect the Fed statement to say, below.

We look for a 25-basis-point rate cut from the FOMC this Tuesday …, although we believe a larger 50-basis-point cut still carries significant probability. We expect further cuts in the discount rate [currently at 5.75%], possibly of greater magnitude than the drop in the funds rate [currently at 5.25%]. We expect the FOMC statement to emphasize that the downside risks to the growth outlook are the predominant policy concern. – Credit Suisse

While we certainly would not be surprised if the FOMC cut the fed-funds target rate by 50 basis points [by 1/2 percentage point, to 4.75%] next Tuesday, in our view, a 25 basis point cut by a slim margin seems the more likely outcome. Even though the FOMC appears to be trying to move toward greater transparency, we think that this Tuesday’s FOMC statement may be a situation in which the less said, the better. …. The outlook for the economy, the credit markets, and the financial markets is highly uncertain right now. In times of great uncertainty, we think the FOMC generally favors an incremental approach to policy changes. – Friedman, Billings, Ramsey Economic Research

For blog link and further debate click link here

No comments: