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 Five Reasons Why the Fed Won’t Cut Rates

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Number of posts : 440
Registration date : 2007-07-01

PostSubject: Five Reasons Why the Fed Won’t Cut Rates   Thu Aug 23, 2007 12:06 am

Five Reasons Why the Fed Won’t Cut Rates

from The Big Picture by ritholtz
The Fed assumption made by many is that its a sure thing the Bernanke and the FOMC are going to give into the whining and pleading and crying and begging and beseeching and howling and weeping (In Yiddish, its called "kvetching") from the anti-free market self-cry baby commies currently residing in positions of influence on Wall Street and the media.

We therefore, goes this line of thinking, should expect rates cuts in September and beyond.

Not so fast, says the WSJ's Marketbeat. They assembled a short list of 5 reasons as to why a rate cut won't happen -- least not at the September meeting:<blockquote>Why the Fed Won’t Cut Rates

1. Official on-the-record Fed commentary: St. Louis
Fed head William Poole and Richmond Fed head Jeffrey Lacker have loudly
argued against it. with Poole saying a “calamity” is required first,
and Lacker noting the impact on consumers is “relatively small."

2. Off-the-record whisperings: Fed reporter Greg Ip wrote:
while “officials acknowledge conditions are far from calm,” they cited
stable stock prices, “a pickup in issuance of jumbo mortgages and other
factors as evidence that in recent days conditions have improved,
though gradually, instead of worsened.”

That doesn’t sound like a monetary policy committee that’s ready to lower rates.

3. What’s Been Done So Far: Through open market
operations, the Fed has maintained a lower funds rate than the 5.25%
target for the last couple of weeks. In addition, the Fed reduced the
fee on lending from the System Open Market Account

4. Key economic indicators: Official household
unemployment rate in July was 4.6%, which was up from the yearly low of
4.5%. Generally, it takes at least a change of 0.2 percentage points in
this rate for the Fed to act, notes Ashraf Laidi, head of forex
strategy at CMC Markets. Meanwhile, the year-over-year rate of consumer
inflation still remains above the Fed’s upper target of 2%.

5. Moral hazard: Comments by Messrs. Poole and
Lacker and the Fed suggest they are reluctant to be seen as bailing out
hedge funds and other Wall Street players who became too intimate with

</blockquote>Go read the entire thing.
(Coming later this week: 5 reasons why they will cut rates).


Five Reasons: Why the Fed Won’t Cut Rates
David Gaffen
Marketbeat, August 22, 2007, 12:02 pm
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