Official - Will The Fed Cut Rates? on 9/18 Discussion

[Jimbo232]

Will the Fed cut rates? Should the fed cut rates? How will the market react?

[Jimbo232]

While not as well versed on the subject as others on the board, I would guess the Fed will cut the FFR by .25%. I don't think Bernake particularly wants to given inflationary concerns and the negative pressure on the dollar, but I think he has been backed into a corner. The market expects a cut and the housing and credit markets are straining right now - I think the Fed will react. Still, I can't see the Fed making a half a percentage point cut right now, and I think the market has priced in greater than a .25% cut, therefore I believe the market will hold steady or slightly decline after the announcement. My 2 cents.

[gonebroke2]

I think they need to hold steady. Recession is inevitable no matter what they do so they might as well try to salvage the dollar. Wall Street is already pricing in multiple rate cuts so Bernanke might give them what they want. Undecided between .25 or no cut. I voted hold steady.

[Jimbo232]

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I think they need to hold steady. Recession is inevitable no matter what they do so they might as well try to salvage the dollar.

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I am torn on what I think they should do. I am all for letting the market run its course and letting people pay for the bad decisions they've made. I do not believe it is the Fed's responsibility to bail us out. On the other hand, I think to some extent the Fed keeping rates so low in 2002-2004 provided fuel for this mess, and slightly reducing rates now allows them to correct for a previous mistake.

Ultimately, as a young investor with a long horizon, I am more concerned about inflation or the declining dollar hurting me over my lifetime than an immediate correction in the housing/credit markets. I guess I'd hope they hold steady, but ultimately I think they will lower rates.

[DcifrThs]

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Will the Fed cut rates? Should the fed cut rates? How will the market react?

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i was gunna make this poll but saw you just did...

unfortunately you messed it up lol it should be

Question 1: do you think the fed will cut rates? hcoices should be a) no, b) .25 bps to 150bps

Question 2: do you think the fed SHOULD cut rates? choices should be the same.

i think the fed will cut rates by 50 bps.

i think the fed SHOULD either hold rates steady or cut by 25bps.

id really like to see the fed hold rates at 5.25 right now. if things get bad between that decision and the next one in october, then they can cut by whatever they think is necessary.

1month will not imo make a big difference in the real economy.

a hold right now will tell the markets "the days of a fed put are over"

Barron

Barron

[ahnuld]

I dont see how 25bp now will cause inflation risk to increase. Its not the fed bailing out the market but responding to a slowing economy.

[DcifrThs]

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I dont see how 25bp now will cause inflation risk to increase. Its not the fed bailing out the market but responding to a slowing economy.

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well, in theory, it probably shouldn't since it is a small relative change in a time when it is seen by the markets to be needed.

but in reality, one major driver of inflation is inflation expectations. a 25 bp cut now could cause planning for future inflation to occur.

the counter argument is that the fed has been so good at retaining a low inflation rate that businesses will hold onto that faith until data disprove it.

i believe, like you, that a 25bp cut won't spark inflation...

but we are at a place now where inflation could EASILY increase quickly. capacity utilization is at 82.2%, .2% higher than concensus and really surprising. that is freaking high.

the main message the fed should send, again imo, is that there is no more and will be no more "fed puts." if you take risks, you pay the consequences.

Barron

[dandy_don]

My opinion is that the market is demanding a 50bps drop and the Fed will reluctantly drop 25bps but they would actually prefer to keep the rates the same--I believe they will cave to the pressure by meeting them half way.

dandy

[Groty]

I said hold steady but the correct answer is probably a 0.25% cut.

I said hold steady becaue I interpret (perhaps wrongly) the surge in discount window lending reported last night as a sign the FED's emergency discount window rate cut on August 17th is accomplishing the objectives the FED wanted.

Of course, one can easily make the argument that if banks are using the discount window, then there's still turmoil in the money markets that requires additional stimulus.

[DcifrThs]

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I said hold steady but the correct answer is probably a 0.25% cut.

I said hold steady becaue I interpret (perhaps wrongly) the surge in discount window lending reported last night as a sign the FED's emergency discount window rate cut on August 17th is accomplishing the objectives the FED wanted.

Of course, one can easily make the argument that if banks are using the discount window, then there's still turmoil in the money markets that requires additional stimulus.

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nowhere in the fed's responsibilities lies solving market turmoil.

in fact, the fed funds rate shouldn't move at all if the only worry is turbulence in the money markets.

turbulence in the money markets comes from:

- interbank rates higher than policy rates by a wide margin. this comes from banks not wanting to lend to each other. they don't want to lend to each other because they don't know how much money they'll need for their own purposes AND they don't trust other banks/collateral provided by other banks for those loans.

- money market mutual funds are being sold (investors are seeking redemptions) into this market and many providers have been using asset backed commercial paper (ABCP) backed by subprime mortgages markets to generate returns. this generates more pressure on money markets as people flee anything associated w/ the "contagion"

- the whole source of this problem of course comes down to the subprime mortgages and their use. many of them were securitized and given high ratings by ratings agencies and purchased by tons of investors worldwide. those ratings proved possibly to be wrong as expected defaults rose and prices plummeted.

risks that were thought to be diversified and bore by willing investors were actually obfuscated and the source of market wide paranoia.


so, the fed can't really do much more here than it already has done.

using the discount window is a good thing now (relatively speaking lol)

Barron