Fed rate cut?

[dhukka]

Very interesting Nick. Have you analysed the indicies following rate cuts over a greater timespan?

Macroeconomically, the chart makes sense - the fed is cutting rates as it gets evidence of a slowing economy. The statistics it uses to make that assessment come out more frequently than company profits and with the impact of inventories, many companies can sustain production in the face of falling sales resulting in a time lag.

What would be more interesting is a longer term analysis looking at the typical length/depth of the contraction following the start of rate cuts.

Was discussed here;

During the last Fed easing cycle they cut 500 bps in 2 and a half years and the S&P500 fell 50% over the same period, however every time is different, 1990-91 saw much less carnage in the stock market.

 

[doctorj]

Cheers

 

[2020hindsight]

Was discussed here;

During the last Fed easing cycle they cut 500 bps in 2 and a half years and the S&P500 fell 50% over the same period, however every time is different, 1990-91 saw much less carnage in the stock market.

so lemme get this straight - you blokes are saying
we're not out of the woods yet?

PS surely we won't see another panic like yesterday though ?

 

[RichKid]

I love it ! Best laugh I've had all day

hehehe, purely unintentional...I assure you no one ever laughed at those quips when I made them in the bullmarket....glad it's taken in good humour.

Here's a brief article, there's a free EWI video on an aspect of this topic and (possibly) a more detailed chart but I can't find either, will try googling for them later.

Fed Cuts Rates, Pushes On The String
9/18/2007 3:02:00 PM
By Nico Isaac
Elliott Wave International http://www.elliottwave.com/

The subprime mortgage implosion ... the credit crisis ... the housing downturn ... recent comments by former Federal Reserve chairman “El Maestro” Greenspan comparing current economic conditions to those that preceded Black Monday of 1987 ... AND, the most recent blow, the September 7 Labor Department report revealing the first monthly decline in payrolls in four years.

After months of trying to ease the U.S. economy back onto solid ground via more delicate means such as verbal ammunition and cash infusions, the mainstream “experts” agreed: It’s time for the Fed to bring out the Big Guns. And on Tuesday, Sept. 18, they finally did with half-point cuts to the federal funds and discount target rates.

Here's what the experts called for prior to the cuts:

* “The Rubicon has been crossed,” begins one September 7 Reuters. “ With August’s stunningly weak US payrolls number, the door is now wide open for the US Federal Reserve to cut interest rates.”
* “The strongest tool the Fed has for speeding up the economy is interest rate cuts. The US will slow but avoid a serious downturn partly because of aggressive Fed moves to head off such an outcome.”

COURTESY THE SEPTEMBER 2007 FINANCIAL FORECAST
Really? Because history has already told this story, and its message is different: According to historical data, rate cuts haven’t made a lick of difference as far as stimulating the much-needed consumer to spend, the creditor to lend or the corporation to borrow.

This chart shows – as clear as crystal – that the Fed in fact follows the market.

Take, for example, the fact that during the period between 1984 and 1992, the Federal Reserve slashed rates from 11.75% – TO – 3%, a severe cut that did nothing to prevent the worst stock market collapse since the Great Depression in October 1987, record-high unemployment, a debilitating savings and loans crisis, slow GDP, and economic recession.

Similarly, a Federal Reserve rate cut from 6.5% – To – 1.25% from 2000 to 2002 proved impotent against the longest stock market decline since the Great Depression, the tech-bubble bursting, and a brief economic recession.

(Please Note: From June 2004 to June 2006, the Central Bank RAISED rates from a half-century low of 1% – TO – 5.25%, an equally futile effort to tighten the spigot of easy money and remove the froth from the bubbling housing market before it burst.)

In the words of Bob Prechter, from Chapter 13 of his best-selling Conquer the Crash, the “monetary strategy” of lowering the Federal Funds Rate is about as effective as “pushing on a string.”

And, in the September 2007 Elliott Wave Financial Forecast, our analysts begin with a special section titled “Unwonderful Wizardry Of The Fed.” In this exclusive segment, EWFF presents a powerful glimpse into the Central Banks actions in the wake of the 20th Century’s Greatest Stock Market Manias, showing once and for all the inability of the Fed to “pump life back into the market with a succession of rate cuts.”

The Financial Forecast’s bottom line: “Blind faith in the Fed’s power to hold up the economy and stocks” has dangerous consequences; namely, that investors don’t see what’s directly in front of them before it’s too late.

 

[lesm]

so lemme get this straight - you blokes are saying
we're not out of the woods yet?

PS surely we won't see another panic like yesterday though ?

This isn't over yet, think of last nights action by BB as a stalling or blocking action, which will just delay the inevitable. How it will play out, in real terms, remains to be seen.

 

[Ken]

I am no expert but you cant just keep printing money which is what they are doing.


I think there will be shift in financial power and I have no doubt China/Asia will take the mantle as the US dollar continues to lose its value.

 

[ASK]

I am no expert but you cant just keep printing money which is what they are doing.


I think there will be shift in financial power and I have no doubt China/Asia will take the mantle as the US dollar continues to lose its value.

Despite the shift away from the USD, I really cant see the Chinese Yuan or any other asian currency taking the 'mantle' anytime soon. Although the RMB is getting stronger (see annual growth figures) and I dont think you see alot of countries across the globe throwing around Asian units as a secondary currency. The US might have lost some of its financial power... but the greenback is a powerful powerful currency ... and it WILL rebound.

 

[Kauri]

Traders now reckon that a 75% chance of a 75 bp rate cut next week by the Fed is being priced into the market and this is behind the US bond yield slump back to the lows of this morning. More bad news .. the US budget deficit will jump to $250 bln this year, according to the Congressional Budget Office though they are not forecasting a recession... mainly because GW told them not to..
Cheers
..........Kauri

 

[barnz2k]

US CUT RATES HALF POINT AGAIN

http://www.smh.com.au/news/world/us-slices-interest-rates--again/2008/01/31/1201714088847.html

 

[Aussiejeff]

US CUT RATES HALF POINT AGAIN

http://www.smh.com.au/news/world/us-slices-interest-rates--again/2008/01/31/1201714088847.html

Big deal.

Which is exactly how the DOW reacted within the last hour of trade...

Mucho De Ja Vu here.

Put yer crash hats on folks...

 

[mullokintyre]

Do the big US banks know something that the rest of us do not know?
From Zero hedge

It is not a secret that the biggest market debate of 2024 is when - and even if - the Fed will cut rates: after all, with the US labor force adding hundreds of thousands of illegal immigrants, and core CPI bubbling along at a blistering hot ~4% pace, many - such as Larry Sanders and even Neel Kashkari - are warning that the Fed does not need to cut rates (in fact, a rate hike may be prudent). On the other hand, we have a growing roster of Democrat politicians (most notably Senator Elizabeth "Pokarenhontas" Warren) demanding Powell cuts rates to "help address the affordable housing crisis" and also reduce the record high credit card APRs for their voters.

Two financial giants, have quietly cut the interest rate they pay on their "high yield" savings accounts, a step that usually takes place just around the time they are dead certain the Fed will cut rates or right after.

We are talking about Goldman and American Express: starting with the former, last Wednesday, Goldman’s consumer bank Marcus lowered the rate on its high-yield savings account for the first time in more than three years, trimming the APR on the bank’s flagship product to 4.4%, down from 4.5% in March. It was the first cut since November 2020, when Goldman lowered the rate from 0.6% to 0.5%.
“Our current rate places us ahead of the majority of our peers,” a Goldman spokesperson told Bloomberg in an email when asked to explain the rate cut. “We will continue to focus on providing value to our customers and growing our Marcus deposits business which is a priority for the firm.”

Well, you can only keep growing deposits if the rate cut does not lead to deposit outflows... which can only happen if Goldman knows that everyone else is also about to cut rates, following in the footsteps of the Fed

And then moments ago, doubling down on the clear dovish trend that is suddenly sweeping banks for "reasons unknown", American Express did the same, when it cut the rate on its High Yield Savings Account to 4.30% from 4.35%.

As usual, look at what they do, not what they say everyone else should do.
Mick

 

[divs4ever]

Do the big US banks know something that the rest of us do not know?
From Zero hedge

As usual, look at what they do, not what they say everyone else should do.
Mick

but as i read it those banks are cutting rates to depositors ( not borrowers ) does this mean they are trying to increase margins , or just now confident they can take market share from the small regionals , while the Fed/Treasury do all the salesmanship for them

 

[Chipp]

Do the big US banks know something that the rest of us do not know?
From Zero hedge

As usual, look at what they do, not what they say everyone else should do.
Mick

Follow the data not narratives . ZQ futures tell you more about rate direction than any pundit out there and even then ZQ futs can only tell you anything with a modicum of reliabity on fut contracts maybe 3-4 months out . 12 months out is a scattergun

 

[Dona Ferentes]

I am no expert but you cant just keep printing money which is what they are doing.

that was from Jan 2008

(wait until Covid comes along)

I think there will be shift in financial power and I have no doubt China/Asia will take the mantle as the US dollar continues to lose its value.

how long's that piece of string?

 

[Garpal Gumnut]

Powell not giving much away. Inflation to get to 2% before any consideration of a rate cut.

His tone is optimistic.

gg

 

[divs4ever]

LOL

wheeling out the jaw-bone once again

one day even the algos won't believe him