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so do we get a cut?
- Thread starter dhpar
- Start date
Quote from Ivanovich:
Alright then. So based on the fact that the market controls the futures rate (in essence) and the market has been completely wrong before, how does the fact that the market is looking for a rate cut translate to the Fed actually cutting?
Isn't it conceivable that the Fed holds back?
No. Because the Fed has already allowed the Funds rate to freely trade 5%.
Is it possible that the 100bp's down the road will never materialize? Certainly. I'd add probable. I'll be shocked if we ever see 4% Funds again. Then again I'm a perma bear on Treasuries.....
Gotcha. So what you're saying is that if the Fed did not intend to cut the rate, they'd never have allowed 5% to trade.
What if they weren't sure what they'd do, and wanted the option on the table?
I'm not trying to be a pain in the ass. I'm just trying to understand a bit more. Thanks for taking the time to explain it.
What if they weren't sure what they'd do, and wanted the option on the table?
I'm not trying to be a pain in the ass. I'm just trying to understand a bit more. Thanks for taking the time to explain it.
Quote from Ivanovich:
Gotcha. So what you're saying is that if the Fed did not intend to cut the rate, they'd never have allowed 5% to trade.
What if they weren't sure what they'd do, and wanted the option on the table?
I'm not trying to be a pain in the ass. I'm just trying to understand a bit more. Thanks for taking the time to explain it.
You know when you hear reports "the Fed has injected a zillion in liquidity this morning?" That's the Fed shifting. IMO, they won't dare be Indian givers.
IF the Bond-which has little practical "ties" to the overnight rate-had been sluggish through all this, I'd argue you may see a rather restrictive Fed. However EVERY segment of the curve, in fact every bond market in the WORLD has been rallying like mad.
Fed policy is rather impotent in fighting non wage inflation. With housing weak, job creation dismal, credit cards maxed, the Fed probably figures who cares what the price of oil is as long as American's can't afford to fuel up their cars.
Granted a cheaper dollar has been a major catalyst of commodity inflation. The dollar however has been breaking for years with the fed not having eased since mid 2003. Hence one can argue that the dollar is operating quite independent of Fed policy.
Quote from optioncoach:
Not one single compelling reason for a fed rate cut. Lots of potential for one in the future should conditions warrant but we anot there yet. A revision down in jobs is not enough to bring out the alarms and panic for a rate cut. As of last beige book, economy has shown modest growth overall and job market has shown flat to modest growth in various sectors. Housing market has problems but the sector has overbuilt its supply and that needs to get flushed out.
Just because the market is down a little does not mean the FED will cut rates and any talk linking the two is missing the big picture. There needs to be consistent signs of slowing to negative growth and a trend of job reduction, not just a few months sie job numbers are volatile.
The Fed should simply note the weakness creeping in and that they will continue to monitor conditions to see if the economy weathers the storm and watch inflation. Cutting rates now would send a signal that the fed is panicked or easily swayed by long stock holders who want the cut for a rally. Look where the indexes are compared to March lows of this year and July lows last year. Still up a lot and the fed is nto going to act to keep a potentially overbought market propped up.
Just my opinion but I see no rush to hit the panic button and start cutting rates.
I agree, to bad it's all political. Fed will give wallstreet what it wants.
Quote from Pa(b)st Prime:
No. Because the Fed has already allowed the Funds rate to freely trade 5%.
my guess for this highly unusual move the Fed wanted to give banks more money ie help financial sector not the broader economy. It says some big institutions are in trouble and it wouldn't suprise me if some big bank or a broker fails down the road and needs to be bailed out. I agree with the posters that from the general economy perspective the rate cut is not needed, it's too early .. I think the activity in gold reflects this fear when one type of money (securitized debt) gets into trouble another gains favor
Quote from Pa(b)st Prime:
You know when you hear reports "the Fed has injected a zillion in liquidity this morning?" That's the Fed shifting. IMO, they won't dare be Indian givers.
So what happens in times like today, when some $1 or so billion in liquidity is withdrawn (at the end of today it's due, supposedly)?
Second, the fact that the ECB has been injecting liquidity like there's no tomorrow doesn't seem to have an effect that they're going to keep hiking. So someone is a bit messed up there.
Quote from Ivanovich:
So what happens in times like today, when some $1 or so billion in liquidity is withdrawn (at the end of today it's due, supposedly)?
Second, the fact that the ECB has been injecting liquidity like there's no tomorrow doesn't seem to have an effect that they're going to keep hiking. So someone is a bit messed up there.
I am guessing a monster sized Euro bank is in deep over its head and time is needed to hatch a fix......
notice how quiet banks have been re: credit.....nobody's talking
also just like gold, the run on the treasuries reflects this desire to hold money which the market perceives as safer, the out of favor securitized debt is being proffered but nobody wants it anymore, so it stays on the books of financial institutions who are required to redeem it for cash, ex. the holder of commercial paper refuses to roll over. I don't know how it will be fixed, how do you restore confidence in the paper that loses trust, perhaps offer it at a steep discount, but that would require banks to take a serious loss on their holdings. but back to the rate cut, I think they will use it to prop up the stock market if/when the financial sector starts to drag it down. after the shake out the treasuries will sell