Interesting reading regarding US rate cuts...
Riz
NEW YORK (Reuters) - The clamor for a steep Federal Reserve interest rate cut grew louder on Wednesday as the carnage in stocks deepened and some disgruntled investors heaped scorn on revered Fed chairman Alan Greenspan.
Futures contracts and market economists on Wednesday both registered higher expectations for the Fed to cut the key federal funds rate on overnight bank lending by 0.75 percentage points at its March 20 meeting to 4.75 percent.
At the end of last week, the fed funds futures contract, a barometer of rate expectations, reflected about an 85 percent chance of a half point or 50-basis-point rate cut and only a 15 percent chance of a three-quarter point or 75-basis-point cut. After the global stock market sell-off this week, the contract reflected about a 60 percent chance of a 0.75 point cut.
``We need 100 basis points of rate cuts to get the economy going in a new direction,'' said Graham Tanaka, president of Tanaka Growth Fund which manages $200 million in assets.
``One of the dangers is if the Fed doesn't move faster, we could have another Asia crisis. The Fed could lose control -- if they don't loosen quickly, it could have a ripple effect in the Asian and European economies.''
U.S. stocks have been on a dizzying roller-coaster ride this week. A deep, broad sell-off on Monday was followed by a bounce on Tuesday as investors snapped up bargain-price shares. But that brief respite gave way to resumed selling on Wednesday.
``What has happened to the markets has increased the probability of the Fed moving 75 but it's not a fait accompli,'' said Gerald Cohen, senior economist at Merrill Lynch.
FED AN EASY SCAPEGOAT
The market has been plagued by worries about the slowing U.S. economy, shrinking corporate profits and, more recently, about the fragile state of Japan and other Asian economies and the possibility of a broad global economic downturn.
The selling this week culminated a black year for U.S. technology stocks, and to a lesser extent the broader market, which wiped out some $4.3 trillion of wealth.
``The Fed is the easiest, most handy scapegoat,'' said Bill Meehan, chief stock market analyst at Cantor Fitzgerald. ''Greenspan is the devil incarnate from the point of view of ordinary Americans. Some people have seen 80 percent of their pension funds wiped out.''
CNBC, the cable television business news channel, said it had received e-mails on Wednesday from viewers calling for the resignation of Greenspan.
But just last week, the Wall Street Journal published a poll showing Greenspan had not been tarnished by the economy's turn for the worse.
``There are a lot of investors who are grumbling,'' said Tanaka. ``There is a fairly strong feeling on the part of a lot of people that Fed kept rates too high for too long last year.''
The Nasdaq composite, an index of some 4,700 stocks heavily weighted with technology shares, has suffered the brunt of selling. It is now down more than 60 percent from its record high a year ago. The Nasdaq closed 2.12 percent lower on Wednesday at 1,972.
Losses outside the technology sector have been mounting this week, particularly in blue chip stocks. The Dow Jones industrial average closed down 317 points or 3.08 percent at 9,973 -- and was under the 10,000 for the first time since October. The S&P 500 is down more than 20 percent from its record high which is defined as a bear market.
NOT IN CRISIS MODE
Though the economy is weakening and the stock market is reeling, the Fed does not appear to be in crisis mode yet, analysts said.
Greenspan has said he strongly prefers to wait for scheduled Fed policy meetings to adjust rates, though the stock market may have been calmer had the Fed moved earlier.
Some analysts say the Fed is trying to send a message that it will not come to the rescue of the stock market unless there is a liquidity crisis like the U.S. credit crunch at the end of 1998 which prompted three back-to-back central bank rate cuts.
``The markets have become accustomed to getting their way,'' National City Corp. chief economist Richard DeKaser said. ``I don't think the Fed wants to cave, or acquiesce. They don't want the markets to perceive that they are going to put a safety net underneath them.''
So far, the Fed has remained focused less on the markets and more on the economic data which has been mixed. Housing, employment and consumer spending are weakening but not collapsing. Consumer confidence and the manufacturing sector are sending out distress signals.
Riz
NEW YORK (Reuters) - The clamor for a steep Federal Reserve interest rate cut grew louder on Wednesday as the carnage in stocks deepened and some disgruntled investors heaped scorn on revered Fed chairman Alan Greenspan.
Futures contracts and market economists on Wednesday both registered higher expectations for the Fed to cut the key federal funds rate on overnight bank lending by 0.75 percentage points at its March 20 meeting to 4.75 percent.
At the end of last week, the fed funds futures contract, a barometer of rate expectations, reflected about an 85 percent chance of a half point or 50-basis-point rate cut and only a 15 percent chance of a three-quarter point or 75-basis-point cut. After the global stock market sell-off this week, the contract reflected about a 60 percent chance of a 0.75 point cut.
``We need 100 basis points of rate cuts to get the economy going in a new direction,'' said Graham Tanaka, president of Tanaka Growth Fund which manages $200 million in assets.
``One of the dangers is if the Fed doesn't move faster, we could have another Asia crisis. The Fed could lose control -- if they don't loosen quickly, it could have a ripple effect in the Asian and European economies.''
U.S. stocks have been on a dizzying roller-coaster ride this week. A deep, broad sell-off on Monday was followed by a bounce on Tuesday as investors snapped up bargain-price shares. But that brief respite gave way to resumed selling on Wednesday.
``What has happened to the markets has increased the probability of the Fed moving 75 but it's not a fait accompli,'' said Gerald Cohen, senior economist at Merrill Lynch.
FED AN EASY SCAPEGOAT
The market has been plagued by worries about the slowing U.S. economy, shrinking corporate profits and, more recently, about the fragile state of Japan and other Asian economies and the possibility of a broad global economic downturn.
The selling this week culminated a black year for U.S. technology stocks, and to a lesser extent the broader market, which wiped out some $4.3 trillion of wealth.
``The Fed is the easiest, most handy scapegoat,'' said Bill Meehan, chief stock market analyst at Cantor Fitzgerald. ''Greenspan is the devil incarnate from the point of view of ordinary Americans. Some people have seen 80 percent of their pension funds wiped out.''
CNBC, the cable television business news channel, said it had received e-mails on Wednesday from viewers calling for the resignation of Greenspan.
But just last week, the Wall Street Journal published a poll showing Greenspan had not been tarnished by the economy's turn for the worse.
``There are a lot of investors who are grumbling,'' said Tanaka. ``There is a fairly strong feeling on the part of a lot of people that Fed kept rates too high for too long last year.''
The Nasdaq composite, an index of some 4,700 stocks heavily weighted with technology shares, has suffered the brunt of selling. It is now down more than 60 percent from its record high a year ago. The Nasdaq closed 2.12 percent lower on Wednesday at 1,972.
Losses outside the technology sector have been mounting this week, particularly in blue chip stocks. The Dow Jones industrial average closed down 317 points or 3.08 percent at 9,973 -- and was under the 10,000 for the first time since October. The S&P 500 is down more than 20 percent from its record high which is defined as a bear market.
NOT IN CRISIS MODE
Though the economy is weakening and the stock market is reeling, the Fed does not appear to be in crisis mode yet, analysts said.
Greenspan has said he strongly prefers to wait for scheduled Fed policy meetings to adjust rates, though the stock market may have been calmer had the Fed moved earlier.
Some analysts say the Fed is trying to send a message that it will not come to the rescue of the stock market unless there is a liquidity crisis like the U.S. credit crunch at the end of 1998 which prompted three back-to-back central bank rate cuts.
``The markets have become accustomed to getting their way,'' National City Corp. chief economist Richard DeKaser said. ``I don't think the Fed wants to cave, or acquiesce. They don't want the markets to perceive that they are going to put a safety net underneath them.''
So far, the Fed has remained focused less on the markets and more on the economic data which has been mixed. Housing, employment and consumer spending are weakening but not collapsing. Consumer confidence and the manufacturing sector are sending out distress signals.
