FOREX-Dollar pressured broadly after bold Fed move

十二月 17, 2008 at 21:30 | 張貼於Economy, economy USA | 發表留言
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Comment by Robert A. Brusca, PhD, Chief Economist, Fact and Opinion Economics NY, NY
google news commentAbout face for a newly focused Fed 12 hours ago
A move by the Fed, for the Fed?
Perhaps the Fed cut rates so deeply today to get the monkey off its own back more than to help the economy.

Since early this year Fed rate cuts have failed to reduce the rates on fixed or variable mortgages. At each cut the market has clamored for more, pressuring the Fed. Lower official rates from the Fed have helped to keep bank losses at bay. Mortgage lending rates are staying high but the cost of funds to banks is plummeting. Still, due to losses on subprime paper we can’t say that that the banking business for mortgage lending – even with those huge spreads – is healthy. A lower cost of funds is helping, but not enough to stimulate much new lending.

Banks sidelined…
Banks are on the sidelines because they can’t decide what they want to do. Risk is out of the question with so many assets of such high risk already in tow and an economic storm in full swing. No wonder banks only want to buy other banks. At least they (think!) they know that business!

A new direction
The Fed now is turning its policy attention away from rates. Since the FOMC is the rate-setting body and the Board of Governors (a subgroup of the FOMC) handles issues of special lending, it is significant that the Fed said the entire FOMC will provide input on special lending decisions from now on. Special lending is now the main policy lever the Fed has left to pull. It’s done fiddling with interest rates until it’s time to raise them. Without including the other FOMC members (district bank Presidents) in special lending decisions, those FOMC members would have had nothing to do.

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