Monday, October 29, 2007

Federal Reserve Cutting Rates...AGAIN?

Treasury 2-year note yields rose 0.03 percentage point to 3.8 percent as traders reduced bets the Federal Reserve will cut interest rates by more than a quarter-percentage point this week.

``It's very important that the Fed cut rates,'' said Bruce Bittles, the Nashville, Tennessee-based chief investment strategist at Robert W. Baird & Co., which manages $74 billion. ``The market's expecting it. Any disappointment there would lead to a harsh selldown.''

Probably trying boost the coming Christmas season. If we have a bad showing, investments might slip and stocks will tumble. In our wonderful centrally planned economy, Christmas is a good indication of market health. Sure, we might get past X-mas with a good showing, and sure, stocks will boom on Wall Street after the rate drop, but how long will that last? In an instable credit market, do we really want to encourage more borrowing just as the economy tries to fix itself? To put this off anymore is only going to bring greater inflation and possibly recession.

The New York Times has a bit on it as well:

Oil prices rose 1.8 percent today, adding to the 3.7 percent increase last week and raising the specter of inflation one day before the Federal Reserve governors meet to consider whether to adjust interest rates.

Crude oil futures rose above the $93 mark in overnight trading and were up to $93.53 a barrel at the close of exchange trading today, up $1.67 from Friday.

What did they expect? Keep lowering interest rates and liquidating money, and you'll keep seeing the dollar drop, and naturally oil will go up as well.

Many investors expect a rate cut by the Fed that, they say, will ease financial fallout from the ongoing housing slump and uncertainty in the credit market. Investors are almost certain that the central bank will cut its benchmark interest rates when it meets this week.

But Fed bankers, who are wary that an aggressive cut could be inflationary, might see surging oil costs as a harbinger of higher prices. Expensive energy can pinch consumers’ pocketbooks and eventually lead to a downturn in overall spending, which is a major component of domestic economic growth.


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