LadyMod at scam.com
11-01-2007, 08:39 AM
If they keep their word, it will now start to get interesting.
A Rate Cut by the Fed, but a Sense It Stops Here (http://www.nytimes.com/2007/11/01/business/01fed.html?_r=1&th&emc=th&oref=slogin)
http://graphics8.nytimes.com/images/2007/11/01/business/01fed-600.jpg
Traders yesterday on the floor of the Chicago Board of Trade before the Federal Reserve announced it was reducing interest rates.
By EDMUND L. ANDREWS
Published: November 1, 2007
WASHINGTON, Oct. 31 — The Federal Reserve gave investors what they wanted on Wednesday, lowering short-term rates for the second time in two months. But it pointedly warned Wall Street not to assume that more reductions were ahead.
The move, to reduce short-term rates by one-quarter of a percentage point, to 4.5 percent, was aimed at preventing the disruptions in mortgages from crippling the rest of the economy. But the vote was not unanimous, reflecting disagreement among policy makers.
In a statement accompanying its decision, the central bank warned that “some inflation risks remain” and played down risks of a possible recession. “The upside risks to inflation roughly balance the downside risks to growth,” it continued.
That was more sanguine than the view of many investors and analysts on Wall Street, who have warning about the risk of recession and clamoring for easier money. But it also reflected the conflicting signals from the economy: despite a drastic plunge in the housing market, and oil prices approaching $100 a barrel, the overall economy has yet to show signs of serious trouble.
Investors reacted with mixed feelings to the rate cut. Stock prices dipped briefly after the Fed announcement, but ended the day higher. The Dow Jones industrial average closed at 13,930.01, up 1 percent. But prices of Treasury securities declined slightly, and the dollar dropped against other major currencies.
The dollar set a record low against the euro and a 50-year low against the Canadian dollar. Oil prices closed at a record high of $94.53 a barrel.
Just a few hours before the Fed announced its decision, the Commerce Department reported that the nation’s gross domestic product expanded at a surprisingly rapid pace of 3.9 percent in the quarter that ended Sept. 30.
In its statement, the central bank acknowledged that the economy would not keep up that pace, in part because of the depression in housing. But it predicted that the combination of its rate cut on Wednesday and its half-point cut on Sept. 18 “should help forestall some of the adverse effects on the broader economy.”
“They were clearly firing an arrow across the bow of the financial markets,” said Peter Kretzmer, senior economist at Bank of America. “They were telling the markets not to presume that there will be further easing” of interest rates.
Indeed, Fed policy makers seemed to be pushing back against Wall Street, where investors and financial institutions had all but assumed the Fed would cut rates on Wednesday and many analysts argued that it should keep cutting after that.
The dissenter in the 9-1 vote was Thomas M. Hoenig, president of the Kansas City Fed, who wanted to leave the overnight federal funds rate at 4.75 percent.
In another sign of disagreement, the presidents of 6 of the Fed’s 12 regional banks did not ask for a reduction in the discount rate, the rate at which banks borrow from the Fed. The discount rate usually moves in tandem with the more central federal funds rate, which is the rate that banks charge one another for overnight loans.
“What they’re saying is, ‘We’ll do what is necessary to protect the economy, but right now we think it’s unlikely we’ll need to act,’” said Bruce C. Kasman, chief economist at JPMorgan Chase. “They’re setting the bar much higher now.”
Analysts said the central bank’s rate cut on Wednesday was akin to taking out an extra insurance policy against recession. Housing downturns have preceded 8 of the last 10 recessions, and this year’s downward spiral is shaping up to be the deepest in history.
The most recent data on home sales, housing prices and new construction have all been worse than analysts had expected. Defaults have climbed sharply on mortgages to subprime borrowers with weak credit histories, and analysts are predicting 500,000 to 2 million foreclosures on subprime loans by the end of next year.
Wall Street firms and major banks have announced billions of dollars in losses on mortgage-backed securities in the last several weeks.
Fed officials and private economists have predicted that the housing market has not hit bottom. Housing starts in September were down 31 percent from the year before. Sales of existing homes have dropped 30 percent since their peak in 2005, and the supply of unsold homes last month reached its highest level in more than 19 years.
PAGE 2 (http://www.nytimes.com/2007/11/01/business/01fed.html?pagewanted=2&_r=1&th&emc=th)
A Rate Cut by the Fed, but a Sense It Stops Here (http://www.nytimes.com/2007/11/01/business/01fed.html?_r=1&th&emc=th&oref=slogin)
http://graphics8.nytimes.com/images/2007/11/01/business/01fed-600.jpg
Traders yesterday on the floor of the Chicago Board of Trade before the Federal Reserve announced it was reducing interest rates.
By EDMUND L. ANDREWS
Published: November 1, 2007
WASHINGTON, Oct. 31 — The Federal Reserve gave investors what they wanted on Wednesday, lowering short-term rates for the second time in two months. But it pointedly warned Wall Street not to assume that more reductions were ahead.
The move, to reduce short-term rates by one-quarter of a percentage point, to 4.5 percent, was aimed at preventing the disruptions in mortgages from crippling the rest of the economy. But the vote was not unanimous, reflecting disagreement among policy makers.
In a statement accompanying its decision, the central bank warned that “some inflation risks remain” and played down risks of a possible recession. “The upside risks to inflation roughly balance the downside risks to growth,” it continued.
That was more sanguine than the view of many investors and analysts on Wall Street, who have warning about the risk of recession and clamoring for easier money. But it also reflected the conflicting signals from the economy: despite a drastic plunge in the housing market, and oil prices approaching $100 a barrel, the overall economy has yet to show signs of serious trouble.
Investors reacted with mixed feelings to the rate cut. Stock prices dipped briefly after the Fed announcement, but ended the day higher. The Dow Jones industrial average closed at 13,930.01, up 1 percent. But prices of Treasury securities declined slightly, and the dollar dropped against other major currencies.
The dollar set a record low against the euro and a 50-year low against the Canadian dollar. Oil prices closed at a record high of $94.53 a barrel.
Just a few hours before the Fed announced its decision, the Commerce Department reported that the nation’s gross domestic product expanded at a surprisingly rapid pace of 3.9 percent in the quarter that ended Sept. 30.
In its statement, the central bank acknowledged that the economy would not keep up that pace, in part because of the depression in housing. But it predicted that the combination of its rate cut on Wednesday and its half-point cut on Sept. 18 “should help forestall some of the adverse effects on the broader economy.”
“They were clearly firing an arrow across the bow of the financial markets,” said Peter Kretzmer, senior economist at Bank of America. “They were telling the markets not to presume that there will be further easing” of interest rates.
Indeed, Fed policy makers seemed to be pushing back against Wall Street, where investors and financial institutions had all but assumed the Fed would cut rates on Wednesday and many analysts argued that it should keep cutting after that.
The dissenter in the 9-1 vote was Thomas M. Hoenig, president of the Kansas City Fed, who wanted to leave the overnight federal funds rate at 4.75 percent.
In another sign of disagreement, the presidents of 6 of the Fed’s 12 regional banks did not ask for a reduction in the discount rate, the rate at which banks borrow from the Fed. The discount rate usually moves in tandem with the more central federal funds rate, which is the rate that banks charge one another for overnight loans.
“What they’re saying is, ‘We’ll do what is necessary to protect the economy, but right now we think it’s unlikely we’ll need to act,’” said Bruce C. Kasman, chief economist at JPMorgan Chase. “They’re setting the bar much higher now.”
Analysts said the central bank’s rate cut on Wednesday was akin to taking out an extra insurance policy against recession. Housing downturns have preceded 8 of the last 10 recessions, and this year’s downward spiral is shaping up to be the deepest in history.
The most recent data on home sales, housing prices and new construction have all been worse than analysts had expected. Defaults have climbed sharply on mortgages to subprime borrowers with weak credit histories, and analysts are predicting 500,000 to 2 million foreclosures on subprime loans by the end of next year.
Wall Street firms and major banks have announced billions of dollars in losses on mortgage-backed securities in the last several weeks.
Fed officials and private economists have predicted that the housing market has not hit bottom. Housing starts in September were down 31 percent from the year before. Sales of existing homes have dropped 30 percent since their peak in 2005, and the supply of unsold homes last month reached its highest level in more than 19 years.
PAGE 2 (http://www.nytimes.com/2007/11/01/business/01fed.html?pagewanted=2&_r=1&th&emc=th)