Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed September Meeting is Bernanke's Test

Interest-Rates / US Interest Rates Sep 10, 2007 - 07:47 AM GMT

By: David_Urban

Interest-Rates The September Federal Reserve meeting becomes a major test for Bernanke's reign as chairman. Wall Street responded positively to the discount rate cut but now the addict that we described earlier will be looking for its next fix. It wants it drug and that drug is liquidity. Since the cut, central banks worldwide have injected more than $300 billion dollars of liquidity into their banking systems through repurchase agreements and other arrangements. This tells me that the problems are not over. They have only moved the liquidity crisis to the backburner hoping, like in March, it corrects itself.


Even with the injections, the commercial paper markets remain tight. Last Wednesday, LIBOR increased to 5.72% its highest rate since January of 2001. The Australian central bank said on Thursday that they will buy bonds backed by mortgages effectively monetizing debt. The Bank of England intends on offering 4.4 billion pounds ($8.9 billion) on Sept. 13 at the benchmark rate rather than the penalty rate to inject liquidity. The ECB issued 42.245 billion euros into the money market with the Federal Reserve injected $31.25 billion, its largest move since injecting $38 billion on August 10.

Richmond Federal Reserve President Lacker told the markets that any move in the primary target rate will depend on the economic outlook rather than the market outlook.

St. Louis Federal Reserve President William Poole, an inflation hawk and voting member of the FOMC, mentioned yesterday that the US economy was near full employment and policy makers need to pursue policies which ensure full employment and price stability.

Henry Paulson has warned investors that there is no quick solution to the problems in the financial markets and there would be a period of adjustment.

In the hedge fund world, the problem now is one of a Darwinian nature where the weakest in the herd are being thinned out. As the weakest (worst performing) hedge funds close up shop, they sell securities, pay down margin, and remove liquidity from the system but create a stronger playing field down the road as the remaining funds absorb the weak funds capital, reallocate, and leverage back up.

If the Federal Reserve cuts rates it will appear to be bailing out the risk takers leaving their credibility significantly harmed. The Federal Reserve needs to allow the markets to experience the ramifications of their actions so that they appreciate the risks they undertake. Ultimately, the success of Bernanke's reign will be measured like his forbearers, in his ability to control inflation. Bailing out risk takers is not in the charter and risks comparisons with the Federal Reserve chairmen of the 1970's.

In Bernanke's recent Jackson Hole speech he stated that the data coming out between now and the September 18 th meeting will be extremely important as to gauging the general public's reaction to the problems on Wall Street.

The data in so far has July personal income rising by 6.6% YoY with personal spending up 4.7%.

August ISM data (52.9) showed a manufacturing sector expanding at a rate consistent with annualized GDP growth of 3.4%. Most indices showed a slowing trend but remained above the growth level of 50.

The non-manufacturing ISM index came in at 55.8 for August, better than expected. The new order component was up to 57 from 52.8 in July but the employment component fell to 47.9, the lowest reading since July 2004.

The Beige Book summary of data indicates that in all 12 Fed districts economic activity continues to expand, albeit at a slower pace.

The jobs report issued today needs to be dissected before determining its effect on the economy. Skimming the surface, employers cut 4,000 jobs in August and job growth was lowered in both May and June. But you need to note that since the beginning of the year job growth has been boosted through the birth/death model. Without the boost, the jobs number would have turned negative much earlier.

On a global basis, the JP Morgan Global Manufacturing Index came in at 53 for August, the fiftieth successive month above 50, the no-growth level.

The August retail sales and industrial production data will be released before the meeting but as it stands now it does not appear as though the housing crisis is spilling over to the broader economy.

As of this moment, I believe that the odds of a Fed Funds rate cut are less than 50%. How the market reacts in the days leading up to the meeting along with its immediate reaction afterwards will tell us a lot about where we go from here. There is a possibility that Bernanke will choose to keep rates on hold in order to penalize the risktakers and flush excesses from the system while continuing to leave the door open to changes between meeting periods.

By David Urban

http://blog.myspace.com/global112

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This blog and the author is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.

David Urban Archive

© 2005-2022 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