Interest Rate LimboReactions To The Rate Cut

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You can’t fight the tape. Lehman comes out ahead of expectations and has a killer conference call. Bernanke & Co stomp down interest rates. Equities markets shoot for the moon.
Wall Street’s economists have had mixed and contradictory reactions to unexpectedly deep cut. Some think the 50 basis point cut is the full-monty. Others think there is more to come.
“The FOMC makes it sound like ‘one and done’ as it cuts both the Fed funds and discount rate by 50 basis points but continues to note inflation risks,” Drew Matus of Lehman Brothers is quoted as saying in the Wall Street Journal’s
Real Time Economics blog
. “As of this writing, we no longer look for the Fed to cut rates in October but that position, like the Fed’s, remains data dependent.”
“I don’t think this was a one-and-done as some are interpreting it to be,” Jane L. Caron, chief economic strategist at Dwight Asset Management, tells the Journal’s Market Beat blog. “The fact that it was a fully supported move by all FOMC members suggests to me the board is indeed seriously concerned about downside risk in the economy.”
Merrill Lynch’s David Rosenberg says its impossible to tell. “The Fed kept its cards much closer to its vest than anyone would have guessed,” Mr. Rosenberg tell the New York Times. “It’s not at all clear they think they have more to do.”
For what it’s worth, both the Journal and the Times seem to have interpreted the accompanying statement as signaling that more cuts may well be on the way.
Around the blogosphere, the reactions to the unpredicted Fed cut were relatively predictable.
“The Fed now has a third problem to deal with: They have become Wall Street's bitch. They may find that's a difficult condition to wriggle out from ,” Barry Ritholz said at the Big Picture.
“Like a drug addict who stumbles upon a cache of powerful drugs, the market finally got its fix as Bernanke & Co. decided that the way to solve our economic problems is by lowering interest rates more than expected,” the Kirk Report moaned.
“Once in a while you get it right. One time in a row,” wrote Larry Kudlow, who has not been a big fan of Bernanke through the credit crunch. Apparently, this cut wasn't enough to win him over.
Market Beat led off with a one word lede: “Kaboom.”
And longtime trader-blogger Random Roger just admitted he was caught off guard by the move. “Maybe I shouldn't be, but I am shocked that the Fed went fifty on the Fed Funds rate,” he wrote.

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