Wikinvest Wire
Tuesday, June 21, 2005
A Cut In Fed Funds
CNBC is talking up a quote from Bill Gross that the Fed will cut rates by the end of the year. I can't imagine this could turn out to be right.
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5 comments:
Well some people are talking deflation. This might happen in stocks and/or real estate, but I think they are confusing success with keeping some costs contained with an overall trend.
Medical costs are up, it takes a while for oil to ripple, lots of items are higher. Higher interest helps hold up the dollar in several ways (more vale for investment, gfaith in the economy,) lower interest will help push it down increasing prices of some imports.
Perhaps the fed wants moderate inflation?
Who knows? I think no one, not even the fed. There are just too many issues, too many pitfalls. No one knows when the economy will slow (it alwsy does) or whether there will be some wonderful surges in between or when certain real estate markets will gett hit or how they will depress.
The gist of commentary is when it is added up is that just about anything is possible, this coming from intelligent people, with many shifting predictions in the last few months.
Roger - I agree with you; there's no way the Fed would cut rates going into the end of the year without some sort of major market event occuring (i.e., disruption to oil production in Nigeria due to terrorist activity, hedge fund blow up a la LTCM, etc.) to spur such an action. Costs of every stripe are headed higher, and I don't see the Fed stopping the interest rate train until inflation becomes much more moderate and unemployment goes significantly higher (i.e., 6% or more) - JMHO....
to be clear. I think the fed should stop at 3.25%, I have felt this going back to last fall. Given that 3.25% is not realistic I hope they will stop no higher than 3.75%. All I am saying in this post is that Bill Gross will be wrong about when they cut. 6% is not something I see them getting anywhere close to, for that matter no where close to 5% either.
Roger... I see it. It takes a few months for a Fed rate hike to take affect in the market. Sooner or later, all these Fed hikes are going to work their way in to the marketplace. We're probably going to see another soft patch. Add in the price of oil, and the economy isn't set up for strong growth.
I've been putting a few things up on my blog about this. We're more likely to see the Fed move to the downside until the beginning of the year.
I just feel that Al should be pausing to see the effects, instead of just plugging ahead.
"6% is not something I see them getting anywhere close to, for that matter no where close to 5% either."
I think I should have been more clear in my response - when I used 6%, I meant that figure in terms of the unemployment rate, not the fed funds rate. Next time, I'll need to put up a post before dinner, not after...:-)
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