Wednesday, November 28, 2007

Fed Signals They Might Cut Rates Again After All

From Reuters:

“’The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and October,’ Kohn said. ‘Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses.’

Kohn's remarks stood in sharp contrast to recent comments by Philadelphia Federal Reserve Bank President Charles Plosser, Chicago Fed President Charles Evans and Fed Governor Randall Kroszner, who had suggested as recently as Tuesday that the two rate cuts made since mid-September would be enough to buffer the economy from the housing slump and related market turmoil.”

From Yahoo Finance:

“The market was elated after Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit "offsetting" policy from the central bank.

For investors, the possibility for lower rates seemed more compelling than persistent concerns about economic growth. The Fed, which reduced rates at its last two meetings to help calm the shaky markets, will hold its final rate-setting meeting of the year on Dec. 11.”

From The Wall Street Journal:

“In remarks today, Federal Reserve Vice Chairman Donald Kohn said that recent financial-market turbulence has undone some of the progress made in late September and in October, and repeated that ‘nimble’ monetary policy would be needed to address economic risks. Though Mr. Kohn isn't known as a hawk on inflation, his language, before the Council on Foreign Relations, suggests that more interest-rate cuts are a real possibility. Taken as such, the message would represent a rhetorical shift by the central bank -- or dissent among its tribe -- after remarks yesterday from two Fed speakers that emphasized inflationary risks, and the bank's statement with its most recent rate cut that called growth and inflation risks more or less balanced.”

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