Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Fed President Lacker Resists Talk of Fed Funds Rate Cut as US Economy Flirts With Recession

Interest-Rates / US Interest Rates Aug 22, 2007 - 01:39 AM GMT

By: Paul_L_Kasriel

Interest-Rates Richmond Fed President Lacker is the first Fed official to speak publicly about the recent discount rate cut, liquidity issues and the prospects for FOMC federal funds rate policy. I would assume that his comments were cleared by Fed Chairman Bernanke before being delivered to us. Lacker could have saved his breath about discount policy and liquidity challenges. What enquiring minds really want to know is whether the FOMC intends to cut its federal funds rate target at or before its September 18 meeting.


Of course, President Lacker did not comment directly on this. But he reiterated the Poole rhetoric that the FOMC saw no need to cut its fed funds rate target unless it had evidence that the financial market turmoil was spilling over into real economic performance. Although allowing how the risks to the real economy had increased in recent weeks, Lacker remained sanguine about the outlook for continued growth.

Lacker's comments suggest to me that the Bernanke FOMC is more reluctant to cut the federal funds target in the face of financial market turmoil than was the Greenspan FOMC. I think the Federal Reserve is a little bit ashamed of the funds rate cuts back in the fall of 1998 when LTCM was experiencing its liquidity challenge. And to be fair to Greenspan, back in the fall of 1998, the U.S was clearly the only global economic locomotive out there. Today, for the time being , many other regions of the world economy appear to be doing quite well.

Although reluctant to cut its fed funds target, this doesn't mean that the FOMC won't cut short of a Poole calamity. But it needs information that post-August 10 economic activity has taken a decided turn for the worse. The University of Michigan early-August consumer sentiment survey is suggestive of a turn for the worse, but surveys of this type are notoriously unreliable. The weekly ICSC-UBS retail sales survey perked up a little for the week ended August 18, with the index increasing a modest 0.25% after declines in each of the previous two weeks. But this survey, too, is not very reliable.

Perhaps the most important upcoming reports for guiding near-term FOMC policy will be August car/truck sales and the August ISM manufacturing survey. GM reported better-than-expected sales for the first ten days of the month. But if their and their competitors' sales have fallen off a cliff in the remaining 20 days of August, then the FOMC might opt for a 25 b.p. cut in its funds rate target at the September 18 meeting. Similarly, a sharp drop in the ISM manufacturing index could be the catalyst for a cut in the FOMC's funds rate target.

I am confident that the FOMC will lower its federal funds rate target before year-end, but I am not as confident it will occur on or before the September 18 FOMC meeting. As mentioned above, the FOMC appears reluctant to cut. It very well may be that the evidence that the U.S. economy is flirting with a recession is not forthcoming until after the September 18 FOMC meeting. As a result, I continue to believe that the FOMC's fed funds rate target will not be lowered de jure until its October 30-31 meeting. If I am right, there is going to be severe "disappointment" in the financial markets at 2:15 pm EDT on September 18, which, in turn, will increase the probabilities of an October 31 cut in the target rate.

 

By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Paul L. Kasriel Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules