It seems that many investors are already reacting like a rate cut is in the making, almost guaranteed. Frankly, I don't think so. But I could be wrong, but I don't think so.
Why not, you may say?
First and foremost it's not going to happen just because some in the financial markets might like it to. You can't just wish it to happen and presto, it does.
The Feds greatest concerns on an ongoing basis are inflation and employment. Inflation seems to be okay or acceptable, not necessarily putting pressure in either direction. Unemployment claims for the last 2-3 weeks have declined.
Let's throw in, just for fun that CNNMoney.com reported this morning that new home sales were up 2.8%. A decline was expected.
But, but, Jay what about the subprime situation? We need help.
The Fed Chairman has plainly stated on more than one occasion that he is not inclined to bail out the financial sector which caused this problem. Furthermore as more details become known it appears that the problem is nicely spread out not just across national markets, but across global markets. Last week it was French and German institutions fessing up to their true exposure to subprime investments. Today the Bank of China disclosed that their subprime related holdings were in the $11.25 B range. Three other Asian banks Singapore's DBS Holdings Group, $1.6B, Taiwan's Cathay Financial, $3.3B, and Commercial Bank of China, $1.23B, were nice enough to admit that they too were helping to share the burden.
Two issues come into play here: the first is that there is still some uncertainty as to the extent of the problem, and second the burden of the problem clearly appears to be spread out nicely across the global markets.
I could be wrong, BUT this picture I'm looking at currently is not one that is conducive to a rate cut.
Therefore, it may just be one man's opinion, but September will come and go and
THERE WON'T BE A RATE CUT!
ps; you may want to bookmark this page to blast me later if I'm wrong. (but I don't think so)
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