Fed Interest Rate Cut Seen This Week
Edited by A-ha, 16 September 2007 - 12:37 PM.
Fed Rate Cut May Spark Rally on Wall St.
Started by
A-ha
, Sep 16 2007 12:31 PM
11 replies to this topic
#1
A-ha
-
- Traders-Talk User
- 5,875 posts
Member
Posted 16 September 2007 - 12:31 PM
Fed Rate Cut May Spark Rally on Wall St.
Fed Interest Rate Cut Seen This Week
Fed Interest Rate Cut Seen This Week
#2
A-ha
-
- Traders-Talk User
- 5,875 posts
Member
Posted 16 September 2007 - 12:42 PM
Fed Rate Cut May Spark Rally on Wall St.
Sunday September 16, 2:22 am ET
By Joe Bel Bruno, AP Business Writer
Fed Cut to Interest Rates Could Bring Consumers Lower Borrowing Costs, Stock Rally
NEW YORK (AP) -- Wall Street players aren't the only ones with a lot riding on whether the Federal Reserve cuts interest rates on Tuesday -- Main Street could also see some pretty dramatic benefits.
Policy makers are widely expected to decrease short-term rates by up to one-half of one percentage point, a move big institutional investors have been clamoring for in recent months.
For the man on the street, a cut would lower credit card bills, make mortgages cheaper and perhaps inject enough confidence into the stock market to revive ailing 401(k) investments.
Economists will likely debate until the 11th hour what the Fed will do when it releases its decision Tuesday afternoon. Even those far removed from high finance are nervous about what could be the biggest decision the Fed has made in years.
"Customers have told me not to touch their loans until the Fed meets," said Darin Hardin, owner of San Clemente, Calif.-based Coastal Hills Mortgage Inc. "People have been assuming for the past six months that rates will be lowered, and nobody wants to make a move until some kind of event happens."
Hardin said his business has been slower in brokering mortgages in California's Orange County, one of the nation's hottest real estate markets. New calls for mortgages aren't coming in as frequently, and those looking to switch to fixed-rate financing from adjustable have been stalling.
A cut in interest rates would immediately make fixed-rate mortgages cheaper. Homeowners with lines of credit will pay less, and those "waiting on the fence to borrow" will have reason to pick up the phone, he said.
A whole host of other borrowings will also become cheaper as U.S. banks follow an interest rate cut by lowering their own prime rates. For those that qualify, loans spanning everything from automobiles to education will be affected -- as will the amount consumers are charged by credit cards issuers.
There's also the psychological impact a rate cut would have on the stock market, where the Dow Jones industrial average has plunged into volatility after hitting an all-time high in July. Traders have been cagey since then, sending the blue chip index bouncing around with triple-digit swings.
Wall Street pundits have pinned their hopes on a rate cut to stem the choppy market conditions, and send stocks higher. That would bring welcome relief in the short term to individual investors whose stock portfolios have fallen in the process.
"The whole thing with the stock market is perception," said Adam Hewison, president of ino.com, a financial Web site catering to individual investors. "We've had a five-year expansion in stock prices, and in the history of things, that's a long time before there's some kind of retrenchment. That has investors on edge."
While a rate cut would likely give the markets a short-term boost, whether its effects would be long lasting remains unclear. There are still a number of economic challenges facing individual investors, with some economists believing that the U.S. might be heading into a recession.
Though a cut might help boost mortgages, it might do little to help the slumping housing industry. Stocks might rally if the Fed delivers, but it won't help some of the underlying problems behind why corporate earnings are weakening.
"As far as rate cuts, when the Fed begins changing direction, there's a very short-run relief rally," said Tom Wilson, managing director of institutional investments at Brinker Capital. "But you have to keep in mind that they are cutting because there is something not right with the economy in one way or another."
-------------------
Fed Interest Rate Cut Seen This Week
Sunday September 16, 12:21 pm ET
By Jeannine Aversa, AP Economics Writer
Fed Ready to Lower Rates This Week for First Time in More Than 4 Years
WASHINGTON (AP) -- For the first time in more than four years, the Federal Reserve appears ready to lower interest rates to prevent a housing meltdown and a painful credit crunch from driving the economy into a recession.
A rate cut would affect millions of borrowers, with the intention of getting them to spend and invest more, which would revitalize the economy.
In one of their most important and anxiously awaited decisions, Fed Chairman Ben Bernanke and his central bank colleagues meet Tuesday to determine their next move on interest rates. Those policymakers are widely expected to cut an important rate, now at 5.25 percent, by at least one-quarter of percentage point. Some analysts predict a bolder step, a half-point reduction.
If the Fed drops the rate, then the prime lending rate that commercial banks charge many individuals and businesses would fall by a corresponding amount. It now is at 8.25 percent.
"It's no longer a debate over whether they will ease but by how much," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is soft and getting softer," and the Fed has come under economic and political pressure to act.
Should the Fed go with a quarter-point cut, analysts expect policymakers will lower the rate again in October and in December, their final meeting of the year.
Fed action would mean that borrowers who can obtain credit would see rates drop on a variety of loans. It would become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills.
Also, it should help some homeowners whose adjustable-rate mortgages reset in the fall.
"Borrowers facing a rate reset Oct. 1 might see their ARM rates adjust to 6.7 percent, for example, rather than the 7.5 percent that a borrower whose loan adjusted back on July 1 experienced," said Greg McBride, senior financial analyst for Bankrate.com. "Still a big increase, but not the knockout punch it could have been," he said.
Less immediate would be relief for the country's economic health. An expected series of rate decreases could take three months to nine month before rippling through the economy and bolstering activity.
"It's like taking an antibiotic. After you take the first dose, you don't feel immediately better. But after a series of dosages accumulate, there will be a more positive effect," explained Stuart Hoffman, chief economist at PNC Financial Services Group.
Over the short term, a rate cut would provide an important psychological boost. It could make investors, businesses and others less inclined to clamp down or make drastic changes in their behavior that would hurt the economy.
Fears that the deepening housing slump and a spreading credit crisis could short-circuit the six-year-old economic expansion have shaken Wall Street over the past few months. Stocks have swung wildly, with sharp drops reflecting investors' bouts of panic.
A recent government report showing that the economy lost jobs for the first time in four years delivered a fresh jolt. The biggest fear is that individuals and businesses will cut back on spending, throwing the economy into a tailspin.
By Zandi's odds, there now is a 40 percent chance the economy will fall into a recession -- the highest probability since the last recession, in 2001. Just two months earlier, Zandi believed there was only a 12 percent chance.
So far, though, consumers have not cracked. Retail sales rose a modest 0.3 percent in August, after a 0.5 percent gain in July, the government reported Friday.
Problems have been most pronounced in housing.
But, Fed Governor Frederic Mishkin said recently, "economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and businesses spending."
He added, "That scenario cannot, in my view, be ruled out, and I believe it poses an important downside risk to economic activity."
Analysts expect the economy will slow to a rate of about 2 percent in the current quarter, from July through September. That would be just half the rate of the three previous months. Growth in the final three months of this year could turn out even weaker.
The employment climate is starting to deteriorate. Employers eliminated 4,000 jobs in August, intensifying calls by politicians and others for the Fed to cut rates. The unemployment rate, now at 4.6 percent, is expected to climb close to 5 percent by the year's end.
The weakness in employment was troubling because job and wage growth have served as shock absorbers for people coping with the housing slump.
After a five-year boom, the housing market went bust more than a year ago. Higher interest rates and weaker home values clobbered homeowners, particularly "subprime" borrowers with spotty credit histories or low incomes. Foreclosures set records and late payments spiked. Lenders were forced out of business. Hedge funds and other investors in subprime-related mortgage securities took a huge financial hit.
A credit crisis ensued, spreading beyond the subprime market to more creditworthy borrowers.
"If current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed Governor Randall Kroszner said in a recent speech.
The situation for the Fed, though, could become even more complicated. Oil prices recently surged past $80 a barrel, a record. Persistent increases could rekindle inflation worries.
Much has changed since the Fed's previous meeting on Aug. 7, when it held its key rate steady. But days later, the Fed was forced to begin pumping billions of dollars into the financial system to stem worsening credit problems and market turbulence.
Then on Aug. 17, the Fed slashed its lending rate to banks and issued a more grim assessment of the economic climate.
Bernanke repeatedly has pledged in recent weeks to "act as needed" to keep the housing and credit mess from sinking the economy.
"It seemed like the Fed was behind the curve. Now it is going to bring out the big gun" on Tuesday and cut its most important rate, the federal funds rate, said Scott Anderson, economist at Wells Fargo.
The last time the funds rate, which is the interest that banks charge each other, was lowered was in late June 2003. The rate is the Fed's main tool for influencing the economy.
"The cut is really needed to improve the cost and availability of credit for the average business and consumer," he said.
Federal Reserve: http://www.federalreserve.gov/
Sunday September 16, 2:22 am ET
By Joe Bel Bruno, AP Business Writer
Fed Cut to Interest Rates Could Bring Consumers Lower Borrowing Costs, Stock Rally
NEW YORK (AP) -- Wall Street players aren't the only ones with a lot riding on whether the Federal Reserve cuts interest rates on Tuesday -- Main Street could also see some pretty dramatic benefits.
Policy makers are widely expected to decrease short-term rates by up to one-half of one percentage point, a move big institutional investors have been clamoring for in recent months.
For the man on the street, a cut would lower credit card bills, make mortgages cheaper and perhaps inject enough confidence into the stock market to revive ailing 401(k) investments.
Economists will likely debate until the 11th hour what the Fed will do when it releases its decision Tuesday afternoon. Even those far removed from high finance are nervous about what could be the biggest decision the Fed has made in years.
"Customers have told me not to touch their loans until the Fed meets," said Darin Hardin, owner of San Clemente, Calif.-based Coastal Hills Mortgage Inc. "People have been assuming for the past six months that rates will be lowered, and nobody wants to make a move until some kind of event happens."
Hardin said his business has been slower in brokering mortgages in California's Orange County, one of the nation's hottest real estate markets. New calls for mortgages aren't coming in as frequently, and those looking to switch to fixed-rate financing from adjustable have been stalling.
A cut in interest rates would immediately make fixed-rate mortgages cheaper. Homeowners with lines of credit will pay less, and those "waiting on the fence to borrow" will have reason to pick up the phone, he said.
A whole host of other borrowings will also become cheaper as U.S. banks follow an interest rate cut by lowering their own prime rates. For those that qualify, loans spanning everything from automobiles to education will be affected -- as will the amount consumers are charged by credit cards issuers.
There's also the psychological impact a rate cut would have on the stock market, where the Dow Jones industrial average has plunged into volatility after hitting an all-time high in July. Traders have been cagey since then, sending the blue chip index bouncing around with triple-digit swings.
Wall Street pundits have pinned their hopes on a rate cut to stem the choppy market conditions, and send stocks higher. That would bring welcome relief in the short term to individual investors whose stock portfolios have fallen in the process.
"The whole thing with the stock market is perception," said Adam Hewison, president of ino.com, a financial Web site catering to individual investors. "We've had a five-year expansion in stock prices, and in the history of things, that's a long time before there's some kind of retrenchment. That has investors on edge."
While a rate cut would likely give the markets a short-term boost, whether its effects would be long lasting remains unclear. There are still a number of economic challenges facing individual investors, with some economists believing that the U.S. might be heading into a recession.
Though a cut might help boost mortgages, it might do little to help the slumping housing industry. Stocks might rally if the Fed delivers, but it won't help some of the underlying problems behind why corporate earnings are weakening.
"As far as rate cuts, when the Fed begins changing direction, there's a very short-run relief rally," said Tom Wilson, managing director of institutional investments at Brinker Capital. "But you have to keep in mind that they are cutting because there is something not right with the economy in one way or another."
-------------------
Fed Interest Rate Cut Seen This Week
Sunday September 16, 12:21 pm ET
By Jeannine Aversa, AP Economics Writer
Fed Ready to Lower Rates This Week for First Time in More Than 4 Years
WASHINGTON (AP) -- For the first time in more than four years, the Federal Reserve appears ready to lower interest rates to prevent a housing meltdown and a painful credit crunch from driving the economy into a recession.
A rate cut would affect millions of borrowers, with the intention of getting them to spend and invest more, which would revitalize the economy.
In one of their most important and anxiously awaited decisions, Fed Chairman Ben Bernanke and his central bank colleagues meet Tuesday to determine their next move on interest rates. Those policymakers are widely expected to cut an important rate, now at 5.25 percent, by at least one-quarter of percentage point. Some analysts predict a bolder step, a half-point reduction.
If the Fed drops the rate, then the prime lending rate that commercial banks charge many individuals and businesses would fall by a corresponding amount. It now is at 8.25 percent.
"It's no longer a debate over whether they will ease but by how much," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is soft and getting softer," and the Fed has come under economic and political pressure to act.
Should the Fed go with a quarter-point cut, analysts expect policymakers will lower the rate again in October and in December, their final meeting of the year.
Fed action would mean that borrowers who can obtain credit would see rates drop on a variety of loans. It would become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills.
Also, it should help some homeowners whose adjustable-rate mortgages reset in the fall.
"Borrowers facing a rate reset Oct. 1 might see their ARM rates adjust to 6.7 percent, for example, rather than the 7.5 percent that a borrower whose loan adjusted back on July 1 experienced," said Greg McBride, senior financial analyst for Bankrate.com. "Still a big increase, but not the knockout punch it could have been," he said.
Less immediate would be relief for the country's economic health. An expected series of rate decreases could take three months to nine month before rippling through the economy and bolstering activity.
"It's like taking an antibiotic. After you take the first dose, you don't feel immediately better. But after a series of dosages accumulate, there will be a more positive effect," explained Stuart Hoffman, chief economist at PNC Financial Services Group.
Over the short term, a rate cut would provide an important psychological boost. It could make investors, businesses and others less inclined to clamp down or make drastic changes in their behavior that would hurt the economy.
Fears that the deepening housing slump and a spreading credit crisis could short-circuit the six-year-old economic expansion have shaken Wall Street over the past few months. Stocks have swung wildly, with sharp drops reflecting investors' bouts of panic.
A recent government report showing that the economy lost jobs for the first time in four years delivered a fresh jolt. The biggest fear is that individuals and businesses will cut back on spending, throwing the economy into a tailspin.
By Zandi's odds, there now is a 40 percent chance the economy will fall into a recession -- the highest probability since the last recession, in 2001. Just two months earlier, Zandi believed there was only a 12 percent chance.
So far, though, consumers have not cracked. Retail sales rose a modest 0.3 percent in August, after a 0.5 percent gain in July, the government reported Friday.
Problems have been most pronounced in housing.
But, Fed Governor Frederic Mishkin said recently, "economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and businesses spending."
He added, "That scenario cannot, in my view, be ruled out, and I believe it poses an important downside risk to economic activity."
Analysts expect the economy will slow to a rate of about 2 percent in the current quarter, from July through September. That would be just half the rate of the three previous months. Growth in the final three months of this year could turn out even weaker.
The employment climate is starting to deteriorate. Employers eliminated 4,000 jobs in August, intensifying calls by politicians and others for the Fed to cut rates. The unemployment rate, now at 4.6 percent, is expected to climb close to 5 percent by the year's end.
The weakness in employment was troubling because job and wage growth have served as shock absorbers for people coping with the housing slump.
After a five-year boom, the housing market went bust more than a year ago. Higher interest rates and weaker home values clobbered homeowners, particularly "subprime" borrowers with spotty credit histories or low incomes. Foreclosures set records and late payments spiked. Lenders were forced out of business. Hedge funds and other investors in subprime-related mortgage securities took a huge financial hit.
A credit crisis ensued, spreading beyond the subprime market to more creditworthy borrowers.
"If current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed Governor Randall Kroszner said in a recent speech.
The situation for the Fed, though, could become even more complicated. Oil prices recently surged past $80 a barrel, a record. Persistent increases could rekindle inflation worries.
Much has changed since the Fed's previous meeting on Aug. 7, when it held its key rate steady. But days later, the Fed was forced to begin pumping billions of dollars into the financial system to stem worsening credit problems and market turbulence.
Then on Aug. 17, the Fed slashed its lending rate to banks and issued a more grim assessment of the economic climate.
Bernanke repeatedly has pledged in recent weeks to "act as needed" to keep the housing and credit mess from sinking the economy.
"It seemed like the Fed was behind the curve. Now it is going to bring out the big gun" on Tuesday and cut its most important rate, the federal funds rate, said Scott Anderson, economist at Wells Fargo.
The last time the funds rate, which is the interest that banks charge each other, was lowered was in late June 2003. The rate is the Fed's main tool for influencing the economy.
"The cut is really needed to improve the cost and availability of credit for the average business and consumer," he said.
Federal Reserve: http://www.federalreserve.gov/
#3
n83
-
- Traders-Talk User
- 1,086 posts
Member
Posted 16 September 2007 - 01:06 PM
http://video.msn.com...75c...p ten&fg=
"..Jubak's Journal: Paying more at the bank
The Fed seems determined to ride to the rescue of banks and the stock market. But don't expect to benefit personally from any interest-rate cut, says MSN Money's Jim Jubak. Instead, count on higher bank fees."
help the biggies..but of course (all about market getting concessions, talking down government when it suits them, then calling for govt. help, and then talking up free market economics..that is why they call it a 'free' market-gg)
that is why they call it a BULL (bs)
(the terms 'free market' 'bull' were not conceived without reason)
"..Jubak's Journal: Paying more at the bank
The Fed seems determined to ride to the rescue of banks and the stock market. But don't expect to benefit personally from any interest-rate cut, says MSN Money's Jim Jubak. Instead, count on higher bank fees."
help the biggies..but of course (all about market getting concessions, talking down government when it suits them, then calling for govt. help, and then talking up free market economics..that is why they call it a 'free' market-gg)
that is why they call it a BULL (bs)
(the terms 'free market' 'bull' were not conceived without reason)
#4
greenie
-
- Traders-Talk ~
- 3,184 posts
Member
Posted 16 September 2007 - 03:22 PM
Fed Rate Cut May Spark Rally on Wall St.
Fed Interest Rate Cut Seen This Week
your PM box is full......
It is not the doing that is difficult, but the knowing
It's the illiquidity, stupid !
It's the illiquidity, stupid !
#5
underabigw
-
- Traders-Talk User
- 280 posts
Member
Posted 16 September 2007 - 03:25 PM
Atilla,
Are you still short the market? If so, are you short a small position or a large one and are you looking for a ST trade or IT trade?
Thanks,
UBW
#6
A-ha
-
- Traders-Talk User
- 5,875 posts
Member
Posted 16 September 2007 - 03:52 PM
still short from thursdays highs... check your inbox for details
Edited by A-ha, 16 September 2007 - 03:55 PM.
#7
underabigw
-
- Traders-Talk User
- 280 posts
Member
Posted 16 September 2007 - 04:38 PM
Got it. Thanks! Tried to reply but it said your box was full or turned off.
Thanks again.
Thanks again.
Atilla,
Are you still short the market? If so, are you short a small position or a large one and are you looking for a ST trade or IT trade?
Thanks,
UBW
#8
prodigalt-t
-
- Traders-Talk User
- 6 posts
Member
Posted 16 September 2007 - 06:12 PM
Atilla,
Would you mind sharing with the rest of us who have been following you, please?
Thanks in advance.
#9
A-ha
-
- Traders-Talk User
- 5,875 posts
Member
Posted 16 September 2007 - 06:28 PM
I already did.
From 13th September 2007 Thursday:
short NQ @ 2003
short ES @ 1486.5
short ER 780.5 - 780.8
shorted XLU nd RKH above 37.9 and 147.5 respectively...bot SRS below 97.4
and I added individual stock shorts from DJU DJR and BKX to these positions as well as more index futures on Friday
for the sake of clarity here is the chart indicating what I did.
From 13th September 2007 Thursday:
short NQ @ 2003
short ES @ 1486.5
short ER 780.5 - 780.8
shorted XLU nd RKH above 37.9 and 147.5 respectively...bot SRS below 97.4
and I added individual stock shorts from DJU DJR and BKX to these positions as well as more index futures on Friday
for the sake of clarity here is the chart indicating what I did.
Edited by A-ha, 16 September 2007 - 06:37 PM.
#10
A-ha
-
- Traders-Talk User
- 5,875 posts
Member
Posted 16 September 2007 - 07:16 PM
if i am wrong , it may be one hell of a rally all the way to the new highs.
SPX may spike 50 points in 15 minutes.
you guys should do your own DD.
it appears there is a huge negativity and bearish sentiment according to some folks here, which may be true.
also historically when fed cuts rates, market almost always rallied strongly , at least for vst.
