Tuesday, August 14, 2007

Oh shooda...

Rumors are flying that the Fed will cut the target rate today. Make of it what you will.


Salmo Trutta said...

1) As their statements indicate, the FOMC breaks down both real-gdp & the core PCE as a policy standard. The Fed won't let the economy decelerate to where it would jeopardize tax receipts.

The rates-of-change in the proxies for monetary flows (MVt) for both real-gdp & inflation are now decreasing. The most rapid fall in the rate-of-change in nominal-gdp begins at the end of Aug. Nominal-gdp then bottoms in Oct. Thereafter the economy rebounds and inflation rebounds with it until c. Jan 08. This holiday looks stronger than the last 2.

I can't tell how fast the economy will slow, or how much it will slow. But if there is to be a cut and it coincides with this window's slowdown (the FOMC is proactive), then it will probably fall in the Sept. period? (Fed's next scheduled meeting on September 18). And though improbable, the decision to cut rates would be made before the Bureau of Economic Analysis releases 3rd quarter data (unusual?).

Accrued Interest said...


My gut is that they don't need to cut before the meeting in September. They are already adding liquidity as needed. Have you seen where actual FF prints have been? Below target for the last 3 days. That tells me they don't need to cut RIGHT NOW.

Salmo Trutta said...

St. Louis Fed shows the dive in rates:

3 month t-bills (secondary market)
6 month t-bills (secondary market)
2 year constant maturity rate
10 year constant maturity rate

Daily U.S. Treasury Bill Rates
4, 13, 26 week trends

Looks like the "trading desk" has started to drain reserves (rates are moving back up).