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Fed minutes dodge issue of next rate cut

The latest minutes from the Fed for its September 18 policy meeting indicate that the Fed decisively cut the fed funds target rate by 50 basis points due both to concerns about instability in the financial markets and over the credit crunchs likely impact of weakening economic growth. Nonetheless, the bottom line from the minutes is that the Fed remains concerned about too weak economic growth and also the risk of high inflation. But as noted with the anti-inflation bias that ended up in the latest FOMC statement, currently the greater of these worries is inflation. But both the minutes and more recent Fed Speak leave the door wide open for the Fed to decide to either cut rates on October 31 or leave them unchanged and neither the minutes nor recent Fed Speak tip their collective hand on which is likely.

What tipped the balance and motivated the Fed to cut rates on September 18? The minutes of the FOMC meeting show that the Fed was clearly concerned about subprime credit problems leading to more adverse effects on the economy. The Fed was particularly concerned about how financial markets essentially were seizing.
"Short-term financial markets came under pressure over the intermeeting period amid heightened investor unease about exposures to subprime mortgages and to structured credit products more generally. The result was that some issuers of subprime mortgages found it difficult to roll over maturing mortgage-backed assets. As a result, asset-backed commercial paper outstanding contracted substantially. Investors sought the safety and liquidity of Treasury securities, and yields on Treasury bills dropped sharply for a period; trading conditions in the bill market were impaired at times. The Fed noted that banks became cautious and took measures to conserve their liquidity. Along with loosening lending practices at the discount window (extended lending periods), the Fed primarily cut rates to unseize the credit markets and to limit the impact of subprime lending problems and also housings decline on the rest of the economy.

Basically, the Fed saw the risks of not cutting rates greater than cutting rates. In effect, the rate cut was an insurance policy to keep the economy growing.

But how does the Fed see the economy in coming quarters? The Fed lowered its outlook for real growth in the fourth quarter slightly but still sees growth rebounding thereafter due to a strong international sector and business investment while the consumer continues to contribute positively.

The FOMC members remain cautious on inflation risks, however. The Fed acknowledged recent improvement in core inflation but is taking a longer-term focus. The Fed still sees upside risks from "rising unit labor costs," high resource utilization, and a decline in the dollar. Notably, the FOMC apparently never did believe that labor markets were as weak as indicated by the initially reported decline in August payrolls.

But net, the markets are seeing the combination of the Fed minutes position on whether there will be a rate cut as being data dependent. More recent, healthy-on-average economic data suggest that there will be no rate cut on Halloween afternoon but that rate cuts will be more spread out than believed immediately after the September 18 cut. Additionally, Fed officials this past week generally reiterated that markets should not assume a rate cut on October 31 and that the decision is still data dependent.


Ben Bernanke Speaks! Monday - Oct 15, 2007

7:00 PM ET : Federal Reserve Chairman Ben Bernanke delivers a speech on the economic outlook to the Economic Club of New York. Q&A expected .

The calendar is back at last.

The FXCM website has been up the proverbial for several days. Pleased to have it back to normal. Edit. Hmmn. Not fully up to speed yet. Daily Fx still stuffed.

Is it just me, or do ChartStation and Intellichart both have problems this morning?

Chartstation seems OK here Hils - using powerchart.

Yes, it's back now Seymour. Ta.

Japan and China Lead Flight from Dollar

I pinched this from the Day Traders Thread

From the Fool:

Dangers of the diving dollar

Where do you go to my lovely?

I have a feeling in my waters that the Dollar, although due to have some strength according to the Dollar index, is due to break down and we see a significant move out of the range.

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Just to let Hils know after that last pep talk, I've been having a good and profitable time on cable over the last couple of weeks. Now watch it all fall apart ;-)

Well done, Seymour. There's been enough posted on the other threads these last few days for you to be able to sell up to Specsavers and take up trading full time.

:o)

Wash your mouth out with soap Hils!! I'd never be able to hold my head up high if I did that :-)

Incidentally, haven't used Ruth's system yet. Have you got those arrows programmed in yet? I'm still using gut feeling, I'm a cup and handle fan, although I do prefer a mug for my tea.

Seymour,

I don't use eSignal, so have no way of programming the arrows. That said, it's quite easy to see where they would be from any of the charts that I do use.

OK, thought that might be the case. Thanks.

Hils
I don't use esignal but was intrigued that you seem to have sussed what Ruth's little predictive model was doing.

I'm a (very) simple soul who would much appreciate what you are using to mimic her model in terms of the MACD indicators you (we, I think) are using - 19,39,9. Or if you are using alternative settings - that would help.

I'll buy you a lemonade in appreciation - some bubbles but not Moet I'm afraid - unless it leads to a resurgence in my fortunes, of course.

Not sure if I can sell "E" Wing to anyone apart from Group 4 - and I think they own it already. I suppose I could sell the services of my inmates - they have particular skills which I'm sure are marketable - and it means I can retire to the Costa Del Sol where all my mates hang out :)

Simple Soul Mate

Seymour and meggers,

It really is a very simple model. I have a PC problem at the moment, but once that is resolved I will send you a message with a link to some piccies explaining how I see it working in practise. I don't intend to post it on a public forum though.

Hils
"E" Wing Elsie(Ernie) says he's very obliged and would you like to go shopping with him/her next time he goes to Kensington High Street. There are a few numbers there that he has his/her eyes on - and he'll acquire (nick) anything you fancy - 'cos (s)he's good like that.

Thanks :)

Thanks Hils. I can now afford to buy you a lemonade as well.

Thanks Hils - got it - and now asking "I" Wing's intelligence Unit to analyse and inform. They used to work for Tony Blair's Think Tank until he sold them to Group 4 as an alternative to a knighthood :)

Just bear in mind that I particularly like Harvey Nicks if Elsie is in the neighbourhood, meggers.