Skip to main content

Is An Emergency Rate Cut Coming?

  • Author:
  • Updated:

If rumors were dollars, we'd be the most liquid team on Wall Street today. The latest rumor we've heard, from a credible source at a large investment bank, is that the Federal Reserve may make an emergency rate cut before the weekend. He admits that this is only a credit trading desk talk for now and if anything he himself is a source unfamiliar with the thinking at the Federal Reserve.
The argument for an emergency rate cut begins with the spike of the dollar, which many believe may be a sign that banks and financial firms are scooping up dollars to make up for lost capital cushion due to events such as the Fannie and Freddie bailout. As this rapid movement in currency places further stress on the global financial system it also creates space for a further Fed easing. The Fed may feel that an emergency cut could ease pressure on the stocks of several financial firms and banks that have come under fire today.
As we said, this is still just something that people are talking about at banks and we haven't had any indication from anyone close to the Fed on this. But be assured that it was talked about on credit markets calls this morning.