The Federal Open Markets Committee (FOMC) made an intra-meeting announcement cutting the Federal Funds Rate Target 75 basis points to 3 ½% and a similar cut in the Discount Rate to 4%. The FOMC justified the move because "broader financial markets have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

In a separate move, the Canadian Central Bank also announced a rate cut as well.

This emergency move was made ahead of a FOMC meeting next week and after global markets around the world tumbled during the Martin Luther King Day holiday when U.S. markets were closed.

I believe that this move was made to re-establish the idea of the Fed as the lender of last result: the Bernanke Put. Initially, the Fed was reluctant to cut rates for several reasons:

• It was viewed as bailing out the stock market, not the economy;
• There were inflationary pressures from rising all prices;
• U.S. exports largely resulting from a falling dollar seem to be cushioning any drop in the economy.

Continue reading The Fed Emergency Rate Cut: Re-establishing the Bernanke Put!

The Fed Emergency Rate Cut: Re-establishing the Bernanke Put! originally appeared on BloggingStocks on Tue, 22 Jan 2008 11:10:00 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.

Today, the Federal Open Markets Committee (FOMC) decided to keep its target interest rate unchanged at 5.25%, as widely expected. The controversy was more over the supporting language of the decision.

The Fed emphasized that its predominant concern was inflation. Some on Wall Street hoped that the Fed might move to a more balanced position by also mentioning concern with the downside risks to the economy. When these hopes were dashed after the statement's release, the stock market dropped briefly before recovering.

The FOMC did acknowledge the recent volatility, tightened credit conditions, and the declining housing situation. It appears to be watching the situation carefully but sees no spread to the general economy. If the Fed had elaborated about any of these topics, it would have created the impression that the situation was deteriorating more than previously thought, and this would have been a negative for the market.

Continue reading The Fed rate decision: In event of disaster only, please!

The Fed rate decision: In event of disaster only, please! originally appeared on BloggingStocks on Tue, 07 Aug 2007 16:05:00 EST. Please see our terms for use of feeds.