Monday, November 19, 2007

Fed Says No More Rate Cuts In 2007?

From Bloomburg:

“Federal Reserve policy makers won't cut their benchmark interest rate on Dec. 11, spurring a sell-off in U.S. stocks and a rebound in the dollar, according to Bear Stearns & Co.

Central bankers signaled in their Oct. 31 policy statement that the Fed `is most likely done cutting rates for the time being,’ Bear Stearns Chief Investment Strategist Jonathan Golub wrote in a research note today. Surging commodity prices and a weak U.S. currency will prompt the Fed to keep its rate target for overnight loans between banks at 4.5 percent to contain inflation, Golub wrote.”

From The Wall Street Journal:

“A Federal Reserve official sent one of the clearest signals yet the central bank isn't inclined to cut rates further, even when stocks sink and economic data turn sour.

‘The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate,’ Fed Governor Randall Kroszner said in prepared remarks before the Institute of International Finance in New York.”


“However, Vincent Reinhart, a fellow at the American Enterprise Institute, says investors may be misreading the Bernanke Fed. Mr Reinhart says the Bernanke Fed has taken a ‘principled decision’ not to talk directly about the likely path of interest rates.

Investors may be misinterpreting the lack of an explicit challenge to market expectations in a speech or leak to a newspaper as a sign that Mr Bernanke is happy with them, he says.

Yet it is also possible that the Fed itself is not being clear enough about its message, perhaps because between meetings there is not a single Fed position.”

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