How many more rate cuts can we withstand?
The Fed can only cut rates so much - we already have a decimated dollar, huge budget deficit, etc. - at what point will these guys have to call it quits and let the market clear up its own problems?
Answers
2547 points
Oldman answered 11 months ago …
That's Bernanke's conundrum that you have voiced so eloquently.
I don't know the answer. I know the Mr. Market expects another 50 basis point cut soon. As unemployment rises, and the credit markets in the developed nations begin to move more freely (translated = better risk analysis of SIV's and option ARM's and other exotica), perhaps we wil see an end to this debasement. { FYI, recently subprime bundeles were being quoted at 16 cents on the dollar even with a 7 % default rate, that's way too low a price, while AltA and AAA were being offered at 85 % of their face, even though their risk is 1/10 of the subprimes.} So the collections of exotica are being flogged at "bargain" prices, but thee and I can't buy them ... and the commercial banks can't either, because their reserves have been downgraded. That's one reason why the mortgage market has been so tight even for those AAA applicants, and fixed rate 30 year mortgages are way above (6%) where the 10 year treasury index suggests they should be.
2703 points
MNSL answered 11 months ago …
There should not be more than two interest cuts. After that it is better if market itself decide. After coming interest cut if investors can’t get what they want then there is something else is happening in the market. Then we must find out what is the reason is. We must not forget other markets also waiting to see what is happening in interest scenario in US. Too much interest rate cut will affect for dollar to come down further. Although it will help export oriented companies, other problems will pop up in the market. I like reasonable interest cut where everybody will benefit in the future.
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314 points
Ifly answered 11 months ago …
If you want a lesson in the limits to interest rate cuts and the effects, check out Japans economic history over the last 15 years! they had interest rates down to zero
Ifly
356 points
SharonMR answered 11 months ago …
Listened to Hillary Clinton today on Meet the Press with Tim Russert. She actually blames Wall Street for the economic mess. She said that she told Wall Street to clean up their act and wait for things to stablize. She wants a freeze on interest rates and a 90 day catchup on the subprime financial crisis. Perhaps she has a point.
Not to get political about this, but sometimes what happens on Wall Street is a result of politics.
No, am not saying I will vote for Ms. Clinton. She is a Democrat running for the office of President. I am an Independent, registered Republican. Will vote for the best person I think can do the job, be he/she a Democrat or Republican.
110 points
zinfool answered 11 months ago …
The number of rate rises or drops is unlimited except by diminishing returns, and political inclinations. The use by Fed Governors has been outrageous, they have voted their politics each and every presidential election favoring Republicans, for at least the last 20 years The Fed rate has gone down prior to each election where a Republican was the incumbent, and up for each time there was a Democratic incumbent. We have a Republican now, so we will see rates drop .50% now, and then .25% and .25% February and March. It takes 6-9 months for rates to increase the economic cycle, so that will make Nov. 08, a "best time for a Republican" that can be during this election cycle. It may not be enough for a win, but they will try! Do you remember the 2000 election cycle where Gore was running up hill against 12, .25% rate hikes? And Kerry against rate drops? Well, yes, Gore's Internet fell apart that year too, in more than one or two ways, and Kerry's fast boat, couldn't speed either. So 3.5% is real, but 2.50%, for a moment or two, is too....... Remember 18%??? That was for Carter, err Reagan.........
Zinfoolish
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