Do you believe Fed Kroszner?

[blazespinnaker]

He's strongly hinting at no cut, yet the futures market are saying 80% of 25 or 50 cut.

What do you believe?

I believe we are on the cusp of something very dramatic. Time to place your bets.

[Tulpen]

Re: Do you believe Fed Kroszner?

I think there is going to be a "come hell or high water" cut. The fed does not want to have an equity asset bubble collapse as well, at least not before Christmas shopping. ;)

[Spartacus]

Re: Do you believe Fed Kroszner? - the problem with helicopter threats

For all his PhD level bravado and all his analysis showing what needs to be done (INFLATE NOW!!!!!!!!!), Bernanke does NOT want to pull the trigger.

He's finding the lecture he and his high and mighty monetary colleagues gave to Japanese authorities a little hard to take hisself.

the problem with easily made helicopter threats (made when inflation WAS tame)
and with easily made printing press threats (made when inflation WAS tame)

is that when it comes time to make good on the threats, the situation has changed.

He's strongly hinting at no cut, yet the futures market are saying 80% of 25 or 50 cut.

What do you believe?

I believe we are on the cusp of something very dramatic. Time to place your bets.

[GRG55]

Re: Do you believe Fed Kroszner?

He's strongly hinting at no cut, yet the futures market are saying 80% of 25 or 50 cut.

What do you believe?

I believe we are on the cusp of something very dramatic. Time to place your bets.

I imagine a managable take down of the equity and commodity markets in 4Q would suit the Fed's "inflation expectations" objectives just fine. What better time to announce the start of forecasting headline inflation when you are about to bang oil and materials (maybe food too)? As long as Wall St. and Bubblevision can keep hard selling the "global growth" and "US exports" story the stock market large caps won't collapse. Besides most of the funds will have closed their year ends and calculated their Christmas bonus (...visions of sugarplums...) by the date of the next FOMC meeting, so the coast will be clear for Bennie and boyz.

Might be helpful to allow the other CBs to catch up? Now that Mervyn King has hinted at rate cuts, can the ECB be far behind? Only China is still raising rates. Would make it easier on the US$ (and take the heat off G-man Hank at those G7/G8/G20 confabs) if the rate cutting occurred in at least three-part harmony.

My guess (and it's truly a guess) is no rate cut in December. If they manage the expectations well, nothing too dramatic need happen.

[DemonD]

Re: Do you believe Fed Kroszner?

Do you believe Fed Kroszner?

.........no

[blazespinnaker]

Re: Do you believe Fed Kroszner?

My guess (and it's truly a guess) is no rate cut in December. If they manage
the expectations well, nothing too dramatic need happen.

I agree. They'll spread the pain out between now and december. I do think we're going in for a recession though.

The only problem is a recession + subprime might equal depression.

[Verrocchio]

Re: Do you believe Fed Kroszner?

I believe we are on the cusp of something very dramatic.

Er, mm, I believe we are in the throes of something very dramatic.

[blazespinnaker]

Re: Do you believe Fed Kroszner?

I believe we are on the cusp of something very dramatic.

Er, mm, I believe we are in the throes of something very dramatic.

Well, I don't think anything has really impacted main street just yet .. dramatically.

I'm thinking major news makers on CNN / major government (non CB) intervention / etc.

[GRG55]

Re: Do you believe Fed Kroszner?

I agree. They'll spread the pain out between now and december. I do think we're going in for a recession though.

The only problem is a recession + subprime might equal depression.

Here's a link to a very interesting analysis on Mark Thoma's Economist View blog. It would appear from his conclusions that the expectation now is that the Fed doesn't actually care about preserving any credibility it may still have.
http://economistsview.typepad.com/ec...uy-headed.html

Some excerpts:

"...Financial market participants are staking out a position that appears completely at odds with the intentions of policymakers. The Fed’s repeated decisions to throw stated inflation worries overboard in the face of the ongoing mortgage/housing/credit market turmoil – even as they reiterate their medium term forecast – has engendered expectations they will continue to cut rates until market conditions normalize and the housing market clearly bottoms out. Neither one of those things is likely to happen before December 11.

In other words, the Fed’s inability to communicate the nuances of their “risk management” paradigm has cost them credibility with financial market participants. The Fed is saying they expect weak growth, it needs to be exceptionally weak to get us to cut. Market participants are saying “you cut rates when GDP growth was nearly 4% and the economy added 166k jobs. How could we possibly believe that you will pause when GDP growth is 1% and job growth is closer to 80k?”

The smart money has been to bet on the market. I simply am not confident that this Fed is willing hold off on a rate cut simply to establish credibility. If Fed officials want to shift expectations away from a rate cut, they need to stop talking about the “risk management” approach. Just give the forecast, stop giving reasons to ignore the forecast.

As an aside, if you are looking for political motivations for the Fed to keep cutting, doesn’t it seem like just a little too coincidental that on the day Krozner makes a clearly hawkish speech that Senator Dodd threatened to hold up Krozner’s Senate confirmation? Apparently, if Krozner wants to keep his job, he better be voting for a cut next month, regardless of his Friday speech?

Bottom Line: Anyone taking Fed comments at face value can reasonably conclude that the intention of policymakers is to pause in December. I don’t know how you can get any more blunt than Krosner on this point. They are looking for data significantly at odds with their forecast to justify another cut, but there is not that much data coming in over the next few weeks. Yet I still shade my expectations toward another rate cut, as I can’t see the Fed willing to risk market stability to cement their credibility. It’s all risk management…"

[c1ue]

Re: Do you believe Fed Kroszner?

It would appear from his conclusions that the expectation now is that the Fed doesn't actually care about preserving any credibility it may still have.

I'm not sure when the 'Fed' ever was all that concerned about their 'credibility' - at least since Volcker left.

The only difference between the B-Nank Fed and the Greenspam Fed is Greenspam had much more room to wiggle in.