Half point Fed rate change

[einreb]

I hope these guys know what they are doing.

My uneducated opinion is that its an acknowledgement of the huge deflationary potential of the housing market/credit fiasco being worse that the insanely inflationary oil and food prices.

[frogger]

+1

[Neilk]

Wow, half point. That's a lot, but will it save the people who are over their heads with ARMs?

[Porsche-O-Phile]

It sucks, IMO.

It's an endorsement of the speculative idiocy that fueled this run-up in the first place and sends the message that it's okay to f*ck around with investments and that "fiscal accountability" exists in name only.

The fools that drove this housing run-up are gonna' get burned either now or later. The piper is demanding to be paid, and he's pissed.

[stomachmonkey]

up or down? I assume down? If so good for me, short term at least. Trying to sell two houses and buy a third.

But I hear what you're saying.

[HardDrive]

......kind of fun watching your stocks on a day like today......

[Rick Lee]

Originally Posted by Neilk

Wow, half point. That's a lot, but will it save the people who are over their heads with ARMs?

It will in no way change anyone's trouble with their ARM's. There is nothing the gov't. can do to fix that problem. Had they banned stupidity a few yrs. ago and enforced it, that might have helped. But we don't have enough prisons for those people, so they get houses instead.

[einreb]

Originally Posted by Porsche-O-Phile

It's an endorsement of the speculative idiocy that fueled this run-up in the first place

I dont think so. The folks that were going to get killed by adjusting teaser rates are still going to get killed.

Its not going to 'save' the housing market. The homebuilding/mortgage stocks seems to be jumping. Dead cat bounce IMO.

[turbo6bar]

Dollar index at record low now. Thanks, Bernanke.

I, too, am worried. Of course, this could be a simple case of Catch-22.

[GDSOB]

I don't think the rate change was to save the housing market- it won't. Way too far gone. It does temporarily prop up Wall Street.

The Fed's bold cut

Reuters
IS THE Federal Reserve running scared of the financial markets—or the housing market? On Tuesday September 18th America’s central bank cut its target for the federal funds rate by half a point, to 4.75%, the first reduction for more than four years. Financial markets had thought a quarter-point cut a shade more likely, but prayed fervently for a half. Rejoicing, the S&P 500 jumped by nearly 3% after the Fed’s announcement and the Dow Jones index closed more than 300 points up.

Once the cheering stops, it may be worth reflecting on what the Fed’s action—and words—say about the state of the economy, especially the housing market. The “tightening of credit conditions”, said the Fed, “has the potential to intensify the housing correction and to restrain economic growth.” The Fed seems to be trying to act before things get worse: the cut, it said, “is intended to help forestall some of the adverse effects on the broader economy”.

This argument is close to that laid out by Frederic Mishkin, a Fed governor, at the Jackson Hole central bankers’ symposium a fortnight ago. If a central bank cuts rates swiftly, Mr Mishkin argued there, it can soften the effects of even a sharp drop in house prices—not least because falling house prices translate only slowly into lower spending. The arguments of Janet Yellen, head of the San Francisco Fed, also seem to have been persuasive, says Adam Posen of the Peterson Institute for International Economics in Washington, DC: “the San Francisco Fed is one of the only regional Feds to have independent full-scale forecasts”. She gave warning this week that “financial market turmoil seems likely to intensify the downturn in housing”.

The Fed will have been helped towards its half-point cut by benign data on both consumer and producer prices: the latter, released on the day of the Fed’s decision, showed a 1.4% fall in August. More bad news from the housing market, published the same day, will have added weight to the argument for a bigger cut. An index of homebuilders’ confidence fell to match the lowest level reached since its inception. And the rate of foreclosures has more than doubled in the past year.


To some, it will seem as if the Fed has caved in to Wall Street. The emphasis on the housing market may help to dispel that impression. So might the Fed’s insistence that “some inflation risks remain” and that it will “continue to monitor inflation developments carefully.” So too, notes Mr Posen, will recent data on inflation, housing and jobs. Even so, the Fed will have to keep choosing its words carefully in the months ahead.

[GDSOB]

Here's a really good concise analysis on the fed rate change:

http://suddendebt.blogspot.com/2007/09/real-reason-for-feds-50-bp-cut.html

[the]

Originally Posted by GDSOB

I don't think the rate change was to save the housing market- it won't. Way too far gone. It does temporarily prop up Wall Street.

Agree. You can't "save" a speculative bubble/Ponzi scheme. Nor should you "save" it. The market needs to correct itself by deflating the speculative bubble.

It does temporarily prop up Wall Street, though. That's why it was done.

[therotman]

It props up the lenders who gave out bad loans and are now having trouble keeping their doors open right now- it does not help the consumers who have the bad loans.

[GDSOB]

Originally Posted by the

Agree. You can't "save" a speculative bubble/Ponzi scheme. Nor should you "save" it. The market needs to correct itself by deflating the speculative bubble.

It does temporarily prop up Wall Street, though. That's why it was done.

That's what I thought. Read the above link for a technical analysis.