Fed Cuts Discount Rate by .50%

[Mango]

I did not think Bernanke would do this. :shock:
I figured he would wait until next quarter for payroll and employment figures.

They need to lower the FOMC rate so that resetting arms coming due will be lower to help the consumers.

IMO, this is just putting a bandaid on a spreading contagion in the subprime markets.


"Aug. 17 (Bloomberg) -- The Federal Reserve lowered the interest rate it makes to banks and acknowledged for the first time today that an extraordinary policy shift is needed to contain the subprime-mortgage collapse that began roiling the world's financial markets two months ago.
The Fed, in a surprise announcement in Washington, lowered the so-called discount rate by 0.5 percentage point, to 5.75 percent. Policy makers dropped language indicating their bias toward fighting inflation, and instead highlighted a rising threat to economic growth."

 

[Bob]

Bernanke strikes me as an ivory tower incrementalist. He is quite content to let the lending industry twist in the wind, unless things get out of hand. I believe the full bore fear mode may be at hand soon as ARM defaults swell in the next 2 quarters. He'll be forced to lower sooner than later.

 

[goofer]

I actually think the FED has been spot on. They can't and shouldn't bail out stupid greedy people and stupid greedy hedge funds. They have lowered rates in a stealth strategy by injecting temporary liquidity the last 3 days to brokerage firms and banks. That in theory has created some confidence to lend and alleviate some of the credit crunch. Today's move in the discount rate , lets banks go directly to the FED window and borrow at very low rates. The FED will most probably lower the FED funds rate at the next FOMC meeting September 18. This bailout in the short term is good, but will add to the inflationary presssures in the future. But I will always come out on the side of inflation versus deflation.

 

[Mango]

They've been injecting money into the markets since last Thursday and it didn't promote any sense of confidence in the markets; ie; Countrywide.
So now the Banks can cover the IOU's of greedy, practically unregulated private equity, hedgers and multinationals, all huge contributors to the GOP.

Well see, but I don't have a lot of faith in this move, and I agree with you Bob, which is why I mentioned lowering the FOMC much sooner than later.
A large majority of ARM's are due to reset in November.

 

[Rambunkscious]

Countrywide (CFC) went up 13% today, a good sign that this is working.

 

[goofer]

Actually the move up in big banks started on Thursday. The mortgage companies stabalized and ticked up also late Thursday. The FED was lowering rates without formally lowering rates by injecting funds all week long. They lowered the discount rate today and will definitely lower the FED Funds rate officially on Sept 18. I believe FED funds are trading in the futures mkt predicting a 50 bps lowering. I think Bernanke did the right thing with great finesse to bring stability back to the mkt. The massive selling this week was forced selling. The hedgies are not out of the woods yet. They all will have massive redemption..also one of the reasons for indiscriminate selling. I am not for a bailout but it is better than a financial panic leading to paralysis in the credit markets.

 

[Bob]

I actually think the FED has been spot on. They can't and shouldn't bail out stupid greedy people and stupid greedy hedge funds. They have lowered rates in a stealth strategy by injecting temporary liquidity the last 3 days to brokerage firms and banks. That in theory has created some confidence to lend and alleviate some of the credit crunch. Today's move in the discount rate , lets banks go directly to the FED window and borrow at very low rates. The FED will most probably lower the FED funds rate at the next FOMC meeting September 18. This bailout in the short term is good, but will add to the inflationary presssures in the future. But I will always come out on the side of inflation versus deflation.

Crude is driving inflation even as the Fed tightens, so to focus primarily on inflation is exactly what one should expect of Bernanke's measured responses. They will be totally ineffective, until he lowers short term rates that will directly benefit borrowers. Ivory Tower Ben has not been proactive, but reactive. Read the last few Fed Meeting quotes, and you would not know they were in America.

 

[goofer]

no question the emphasis has been on the wrong issue. the idea that they measure inflation ex food and energy is absurd. inflation in the economy is energy based....very hard to control. but flooding the economy with money will also exacerbate inflation. fed between a rock and a hard place.

 

[Mango]

Countrywide (CFC) went up 13% today, a good sign that this is working.

No, I didn't miss that today.
Countrywide is FNMA's (a federal agency), biggest client. :scratch:
and that doesn't mean because some analyst from B of A changed CWBC from sell to neutral that this is working. It worked today and people made some money. Hoo Rah!

 

[Mango]

Crude is driving inflation even as the Fed tightens, so to focus primarily on inflation is exactly what one should expect of Bernanke's measured responses. They will be totally ineffective, until he lowers short term rates that will directly benefit borrowers. Ivory Tower Ben has not been proactive, but reactive. Read the last few Fed Meeting quotes, and you would not know they were in America.

Exactly. Trickle up effect, when we should be looking at a trickle down.