Alright I'm a bum I flipped Varian Med.
Similar action today with a strong last hour. Yesterday Fed rumors today false AIG rumors dispelled. Weird stuff. EMC a champ holding for at least one more day.
Back to the Fed for a moment I think we all have forgotten that the Fed may have gone 50 last time so peple would not be expecting another one. If he has gone 1/4 surely each meeting the same would be expected...
At the Sept. 18 meeting of the Federal Open Market Committee, Fed officials voted to cut their target for the overnight lending rate by 50 basis points, to 4.75 percent. Some wanted 50 rather than 25 basis points in order not to create a market expectation of a series of such reductions.
``It was good policy to get out ahead and stabilize the market,'' said William Poole, president of the St. Louis Federal Reserve Bank in an Oct. 19 interview.
``If we did 25, then we would have had the market expectation of 25 at the next meeting,'' he said. ``So it was better to do 50 at once and have the market settle down.''
> two-thirdsof investors now anticipate a quarter-point cut and 11 percent are looking for a half-point.
More bad news in the housing sector of the economy, large declines in profits at some of the largest banks in the country and a plunge in stock prices on Oct. 19 have created these expectations.
Fed Not Gloomy Though:
The well-capitalized U.S. banking system is very solid even with large losses from recent market turmoil.
For instance, Citigroup Inc. reported on Oct. 15 that in the third quarter it had booked about $6.5 billion to cover possible losses in fixed-income trading, underwriting and consumer lending, and it still earned $2.38 billion.
Yes, earnings were much lower than in the same quarter a year earlier. In terms of the health of the banking system, though, the remarkable point was that Citigroup could absorb such potential losses and still be profitable!
Housing No Surprise
Bank of America Corp. also had a large addition to loan- loss reserves, a substantial drop in earnings and still reported a $3.7 billion net. JPMorgan Chase & Co. also booked potential losses while its earnings rose slightly to $3.4 billion.
As for the bad news in housing, Poole said, ``The numbers are about as expected. They were hardly a surprise. I regard them as a continuation of the housing distress.''
In other words, the 10 percent drop in housing starts last month, to a 1.19 million annual rate -- a 14-year low -- isn't seen, at least by Poole, as a reason to reduce the lending target next week.
Similarly, he sees no reason for the Fed to respond to the slowdown in payroll employment growth evident in the September labor market report released Oct. 5. Payrolls increased an average of 97,000 a month in the third quarter, down from 126,000 in the second quarter and 142,000 in the first.
``That was a pretty solid report,'' Poole said. ``We have all been expecting it to be lower because the demographics have really been taking hold.''
Markets Doing Better
A monthly gain of a little less than 100,000 is ``perfectly in equilibrium'' with expectations of labor force growth, he explained. ``It was generally encouraging, not evidence that the labor market was sinking.''
Meanwhile, strains in the money markets continue to dissipate slowly.
Charles L. Evans, Poole's counterpart at the Chicago Fed, said of the markets in an Oct. 22 speech, ``There still is a way to go. Improvements are not uniform, and risks remain. However, markets are functioning better than they were two months ago.''
As for the economic outlook, Evans said that ``our baseline forecast sees soft economic activity this fall; notably, it is likely that a further sharp decline in residential investment will weigh on the top-line growth numbers.
``But we see growth recovering next year and moving up to average close to potential later in 2008, which we at the Chicago Fed currently see as being somewhat above 2 1/2 percent,'' he said.
Housing Insurance Policy?
And recent economic news hasn't caused him to modify that forecast.
``On balance, I would characterize the data we have received on the real economy since the last FOMC meeting as supporting our baseline forecast,'' Evans said.
However, he did raise the question of whether policy makers might want to take out some ``insurance'' against a potentially costly possibility that even greater weakness in housing could undermine economic growth.
Given what Fed officials were thinking on Sept. 18 and what has happened since, that is about the only argument that might cause the FOMC to decide to cut rates next week even by 25 basis points.
~ SI
