Reuters reports that like last week, the global markets are cratering. The question is whether the Fed will come in with the same emergency 75-basis-point rate cut it used last Tuesday when U.S. markets opened to damp the downturn. Here's the damage:

• The pan-European FTSEurofirst 300 was down 1.3%, taking January's losses close to 13%
• Nikkei dropping nearly 4%

In addition to the $150 billion stimulus package, the Fed is already expected to cut interest rates again this week; interest rate futures show the market is betting on another 25 or 50 basis points in cuts, possibly taking rates as low as 3.0%.

But with Dow futures down 57 at 7:15 a.m., it looks this morning like it's not enough -- the Bernanke Call -- investor's expectation that his rate cuts mark a ceiling below which the market will tumble -- appears alive and well. I wonder whether Bernanke will try another emergency rate cut this morning.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Bernanke Call: As globe quakes, will Fed cut again? originally appeared on BloggingStocks on Mon, 28 Jan 2008 08:53:00 EST. Please see our terms for use of feeds.

The Federal Open Market Committee (FOMC) reduced the target Federal Funds Rate and the Discount Rate by 0.25%. The quarter-point cut in the Fed Funds Rate was predicted, although many (myself included) expected the Fed to be much more aggressive in cutting the discount rate, reducing or possibly eliminating the discount window penalty.

The FOMC deleted the reference to a balance between inflation and economic deterioration, although it mentioned that inflationary pressures were still a concern. However, the language describing the recent economic turmoil was relatively restrained.

The Fed gave no assurance that it considers the economic deterioration more serious than inflation, stating that it "will act as needed to foster price stability and sustainable economic growth." It also gave no indications of its course for the future, saying "Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time."

Continue reading The Fed's decision: Not quite as expected!

The Fed's decision: Not quite as expected! originally appeared on BloggingStocks on Tue, 11 Dec 2007 16:04:00 EST. Please see our terms for use of feeds.

Continue reading The problem with the Fed's rate cuts

The problem with the Fed's rate cuts originally appeared on BloggingStocks on Tue, 11 Dec 2007 15:53:00 EST. Please see our terms for use of feeds.

Dow drops 200 as market expected cut of 50 basis points originally appeared on BloggingStocks on Tue, 11 Dec 2007 15:15:00 EST. Please see our terms for use of feeds.

The Fed is scheduled to announce the results of its latest rate-setting meeting at 2:15 this afternoon. Most analysts expect it to cut rates -- at least 25 basis points (100 basis points = 1%). I'm just not sure I understand why the Fed keeps cutting.

There are two reasons that come to mind as possibilities. First, the stock market seems to love hints that the Fed will cut interest rates. Since the summer, whenever the stock market fell a few hundred points, Ben Bernanke or another Fed governor would give a speech using key words such as "flexibility" and the stock market would rally. That's what happened a few weeks ago when the Dow dropped below 13,000 and it magically rallied 750 points.

A second reason is that the Fed thinks that a recession is in the forecast due to a freeze up in the credit markets, and that it's better off cutting rates to ease the pain. If a doctor had only one kind of medicine -- say, aspirin -- then the doctor would prescribe it to all patients, because it was better to give the patient something than nothing at all. This approach would work if the patient had a headache -- but it would be less effective if the patient had cancer.

Continue reading Why is the Fed cutting rates?

Why is the Fed cutting rates? originally appeared on BloggingStocks on Tue, 11 Dec 2007 07:54:00 EST. Please see our terms for use of feeds.

The Federal Reserve Open Market Committee (FOMC) meets tomorrow to decide what to do with interest rates. Based upon speeches by Chairman Ben Bernanke and other Fed officials, it is widely expected that the target Fed Funds Rate will be reduced by 0.25%, with an outside possibility that it will be reduced by 0.50%.

However, the most important outcome from the meeting is the perception that the Federal Reserve is going to stay ahead of the curve to prevent the economy from slipping into a recession. This is the biggest concern of the market. After the last meeting, the statement implying that the Fed was done lowering rates sent the market into a tailspin, despite a 0.25% reduction in the Federal Funds Rate.

The Fed will probably not make the same mistake this time. Here are a few things to look for in the FOMC statement Tuesday:

Continue reading Most crucial outcome from Fed meeting is trust

Most crucial outcome from Fed meeting is trust originally appeared on BloggingStocks on Mon, 10 Dec 2007 17:41:00 EST. Please see our terms for use of feeds.

It's beginning to look like the Federal Reserve has lost its independence. However, rather than taking dictation from the White House, it appears to be under Wall Street's control.

Bloomberg News reports that the Fed is likely to cut interest rates when it meets this week. Traders in federal funds futures initially gave a 75% chance of a rate cut on October 31, but scaled back those odds to 50% after the October 5 revision of August payroll numbers to show a gain instead of a decline.

The reason the Fed stated for its September 18 50-basis-point cut made little sense to me -- some words about market turbulence. The market turbulence is real enough -- related to the subprime mortgage mess -- about which I posted here. But the Fed's job is to keep inflation in check -- and with oil prices hitting a record $93 a barrel and labor rates rising at a 4.9% annual rate -- it is surely failing at that job. (Save me the blather about core inflation -- and excluding energy and food prices.)

However, Bernanke is responding dutifully to his Wall Street masters -- using the interest rate cuts to ladle a heaping dollop of corporate welfare onto the gilt-edged plates of billionaire bankers and hedge fund grandees.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Has the Federal Reserve lost its independence? originally appeared on BloggingStocks on Mon, 29 Oct 2007 15:23:00 EST. Please see our terms for use of feeds.

Economists growing more optimistic, CEOs pessimistic originally appeared on BloggingStocks on Thu, 11 Oct 2007 16:20:00 EST. Please see our terms for use of feeds.

The Minutes of the September 18 Federal Open Market Committee (FOMC) meeting were released today at 2 PM ET. Because of the 50 basis point reduction in the Federal Funds rate that many on Wall Street (myself included) did not expect at the time, there was more anxiety than usual surrounding the release of this report.

Yesterday, the market ended the day for most indexes on the downside, although only mildly so and on low volume because of the Monday holiday. The markets were also off slightly, prior to the release of the minutes. A rally began shortly after the release of the report. The big question is why?

On one side of the equation, the Fed gave no indication that this was only the first in a series of rate cuts. It actually appeared that the cut was more a form of insurance to "forestall" the potential effects of the housing crisis on the broader economy. This indicates that there may not be any additional rate cuts in the near future.

Continue reading The Federal Open Market Committee minutes: A glass half full!

The Federal Open Market Committee minutes: A glass half full! originally appeared on BloggingStocks on Tue, 09 Oct 2007 19:09:00 EST. Please see our terms for use of feeds.