Another Fed announcement, but no rate cut

The market gets all excited when the Fed hits the tape early in the morning, only to be bummd-out when they announce some procedural shift in the TAF auction or somesuch and not the big honkin’ rate cut that it’s hankering for. The Fed, ECB and SNB are getting their ducks in a row to provide bank funding over year-end.

This entry was posted on Tuesday, October 7th, 2008 at 12:19 pm and is filed under Forex. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

12 Responses to “Another Fed announcement, but no rate cut”

  1. reakkt Says:
    October 7, 2008 at 12:24 pm

    Do you really believe that FOMC will cut now and that it will change anything? It would rather be a sign of capitulation. No ammunition left. Maybe I’m wrong (nobody’s perfect), but I’d expect repeat of the situation from September 16th, i.e. no cut, increased liquidity measures instead. And probably, after a short correction, markets will accept that. Just a thought. We will see :)

  2. PeterK Says:
    October 7, 2008 at 12:29 pm

    The other case that needs to be made against a rate cut is that it would worsen the credit mkt freeze. If banks are barrowing from the Fed to deleverage and hoarding that cash, they are paying say 2.50%. They then turn around and buy T-Bills recouping .5%. That means that the cost of recapitalization is 2%. If the Fed eased, guess what that would happen? I would not be working under the assumption that this move would serve to loosen up the credit mkt.

  3. Jamie Coleman Says:
    October 7, 2008 at 12:29 pm

    I do. In wrote about it last night…I think it is only one part of the puzzle, but a needed part. It is a signal at this stage, little more, but the market needs all it can get. It’s like treating a cold: chicken soup, orange juice, aspirin, cough medicine…none of them cure the problem, but together they all help you ride out the illness…

  4. fxquant Says:
    October 7, 2008 at 12:32 pm

    The most stunning fact of this entire financial stress episode is is ECB’s proposing, refuting, dithering and dissecting fine points like a bunch of Talmudic scholars while others are taking decisive and proactive steps, RBA is an excellent example.

  5. PeterK Says:
    October 7, 2008 at 12:33 pm

    The present situation is that the banks are paying through the nose (figuratively) to recapitalise their BS’s. If the Fed was to ease, they would have to inject all the funds necessary to allow the banks to fully deleverage. Only this will force the banks to start lending ops, i.e. making a return so they can pay for the barrowing.

  6. PeterK Says:
    October 7, 2008 at 12:35 pm

    And what would that do to the TARP. If the banks could finance 100% of their MSB portfolios from the FED, what need is there for the TARP. And what would that mean for Saint Warrens investment in Goldman. I shudder to think…..

  7. reakkt Says:
    October 7, 2008 at 12:39 pm

    We may be very close to the climax of this crisis :) Both conflict in opinions and statistical analysis signal that. The question remains whether this is a 6 or 9 sigma event :)

  8. PeterK Says:
    October 7, 2008 at 12:42 pm

    The 6 to 9 sigma events are already underway in Euroland. When Berlusconi begs for a pan European plan to end the banking crisis, you know it must be bad.

  9. reakkt Says:
    October 7, 2008 at 12:42 pm

    Not to mention Russia…

  10. reakkt Says:
    October 7, 2008 at 12:43 pm

    And Iceland…

  11. reakkt Says:
    October 7, 2008 at 12:44 pm

    EcoFin agrees on 50k EUR guarantees for deposits.

  12. reakkt Says:
    October 7, 2008 at 12:53 pm

    In total then, Q4 TAF will offer $1.35 trillion in liquidity.

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