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Mach1 08-31-2006 10:22 AM

Will the Fed reduce rate?
 
Anyone here think that the Fed may reduce rate to reenergize the housing market or the economy?

al_bundy 08-31-2006 10:30 AM

Re: Will the Fed reduce rate?
 
only if inflation goes into their comfort zone which is a lot lower than what it is today

there is no reason to reenergize the housing market, except maybe to prevent a crash if one happens next year

brewer12345 08-31-2006 10:49 AM

Re: Will the Fed reduce rate?
 
Don't hold your breath. The Fed is almost certainly happy to see the housing bubble popping, and they still have a LOT of inflationary pressure to deal with. China didn't exactly stop voraciously consuming, well, everything.

Mach1 08-31-2006 11:11 AM

Re: Will the Fed reduce rate?
 
Quote:

Originally Posted by brewer12345
The Fed is almost certainly happy to see the housing bubble popping

Why do you think that Brewer?

brewer12345 08-31-2006 11:33 AM

Re: Will the Fed reduce rate?
 
Quote:

Originally Posted by Mach1
Why do you think that Brewer?

The housing bubble has pumped up consumer spending a lot and greatly increased demand for a lot of commodities. That translates to a lot of inflationary pressure. It has also lead to a huge expansion of mortgage lending of every description. The bigger a bubble gets, the more disastrous it is when it pops (ask the Japanese). Since the Fed has watch over the banking system and, indirectly, the capital markets, a catastrophic bubble popping would cause serious damage to the banks and markets. Bettter to pop the bubble sooner, take the more modest pain and get on with life.

Sam 08-31-2006 11:40 AM

Re: Will the Fed reduce rate?
 
Quote:

Originally Posted by brewer12345
The housing bubble has pumped up consumer spending a lot and greatly increased demand for a lot of commodities.* That translates to a lot of inflationary pressure.* It has also lead to a huge expansion of mortgage lending of every description.* The bigger a bubble gets, the more disastrous it is when it pops (ask the Japanese).* Since the Fed has watch over the banking system and, indirectly, the capital markets, a catastrophic bubble popping would cause serious damage to the banks and markets.* Bettter to pop the bubble sooner, take the more modest pain and get on with life.

Can you explain it again?* Preferably in English* :laugh:

brewer12345 08-31-2006 11:48 AM

Re: Will the Fed reduce rate?
 
Quote:

Originally Posted by Sam
Can you explain it again?* Preferably in English* :laugh:

Um, OK. The Fed is probably happy to see housing slide because it helps reduce inflation and lessens the chance that we have a rerun of the S&L bailout.

wabmester 08-31-2006 11:55 AM

Re: Will the Fed reduce rate?
 
If you want to know what the fed will do, ask Mr Market:

Fed Fund rate predictions

Mr Market sez the fed will continue to pause as it watches the effect of previous hikes work their way through the economy.

lazyday 08-31-2006 04:34 PM

Re: Will the Fed reduce rate?
 
wab, I don't think I've said before how much I like your posts. :)

You have a great way of getting straight to the point, and often to a good (perhaps the best) source/opinion/authority/resource for the question at hand.

wabmester 08-31-2006 05:11 PM

Re: Will the Fed reduce rate?
 
Quote:

Originally Posted by lazyday
You have a great way of getting straight to the point, and often to a good (perhaps the best) source/opinion/authority/resource for the question at hand.

Oh, thanks!* I like your posts, too!

If something can't be boiled down to a one-liner, I prefer to take a nap rather than try to understand it.* :)

mathjak107 08-31-2006 06:38 PM

Re: Will the Fed reduce rate?
 
its never happened in our economic history that the fed cut rates with unemployment at record lows,,,oil at record highs,,,,commodity prices high and the markets almost at new highs.........why do we think this time they will?

AltaRed 08-31-2006 11:19 PM

Re: Will the Fed reduce rate?
 
They won't. Along with what brewer has said, the housing bubble and all the re-financing resulting from that has fueled consumer demand, inflation and increased debt levels to enormous levels. I see no rate reduction on the horizon.

ex_CFO_now_RVer 09-01-2006 09:11 AM

Re: Will the Fed reduce rate?
 
brewer12345 i right on the mark. The fed may pause this time but will probably will raise during the next meeting after.* The economy is still humming along...gotta slow it down is their take.* IMHO

Dave

modlair 09-01-2006 10:04 AM

Re: Will the Fed reduce rate?
 
I'll toss in 2 cents worth.

The Fed in loud and overt discussion addresses inflation and economic growth. Greenspan, in earlier years, would occasionally mention another elephant in the living room, but that went out of vogue and is now something only addressed quietly.

The elephant is the national debt and its interest. The discussion of it evolved into phrases like "debt service is a not inconsiderable factor in the demand for liquidity from the debt market and has an impact on prevailing rates". Which was Greenspan-speak for . . . if we let rates go too high, the rolling over of US govt debt instruments takes place at higher cost and raises the deficit, which demands even more liquidity from the debt markets.

In this context, it is not at all lost on the Fed that there is some merit in having a floor, not a ceiling, on inflation. Inflation cheapens the value of the large liability on the books called The National Debt. If the debt's interest were merely serviced each year, inflation would "pay it down".

So, it's useful to keep in mind that the Fed certainly has a desired floor on the GDP number, but subtly, they have one on the CPI, too.


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