The Federal Reserve’s two-day FOMC confab begins tomorrow and the
Leaning toward the view that this will be the end of the cutting is Peter Berezin, Goldman Sachs’ global economist. “We expect this to be the last cut, but the Fed will be flexible in responding to economic conditions,” Berezin tells AFP. “Obviously if the turmoil resurfaces, they will be apt to cut rates again. But barring that, they would like to stabilize rates.”
Meanwhile, senior financial analyst at Bankrate.com Greg McBride tells AP: “We are entering the stage where it is time for the Fed to wind down and move to the sidelines. A quarter-point reduction is a nice segue to that transition. Short-term interest rates could stay low longer than many currently expect.”
Judging by long-dated futures contracts, Mr. Market’s calling for another 25-basis-point cut on Wednesday. The Dec ’08 contract, for instance, currently prices Fed funds at roughly 2.0%. If the Fed cuts by a quarter point, 2.0% Fed funds at the end of the year would represent the longest stretch of interest rate stability for this series since Bernanke and company kept rates at 5.25% for the 15 months through September 2007.
But let’s not get ahead of ourselves. First, let’s see what the monetary czars will do (and say) this week. While we’re waiting, let’s observe once more that cutting interest rates at this juncture may be politically intelligent; it may even look shrewd as the ongoing economic slowdown/recession gathers momentum. But it’s also risky with inflationary winds blowing. We’ll know if cutting is savvy or something else in a year or so. Meanwhile, it’s every investor for herself, forcing everyone into their own speculative craft to weather the macroeconomic seas as they come. With that in mind, let’s take a dip and consider one blogger’s view of the universe.