I am in the camp that think the FED will raise rates before they cut them. The have tightened the money supply to the public and while holding the rates steady for the last year due to the housing trouble I think they will hold steady longer. As long as they can hold inflation numbers in check they will hold rates but if inflation jumps and they aren't able to fudge the numbers any more they will have to raise rates.
This time they will do the same song and dance as they did so many other times where they will mention concerns in the sub prime lending market and some concern in the economy which still is growing and there is mild inflation due to higher oil or what have you and they will have to keep and eye on the inflation so it doesn't get out of hand and they will hold the rates.
Looks like PMs should move higher and dollar lower and the markets might sink. They are walking the dollar lower instead having it free fall. Cutting rates would nose dive the dollar and the economy. Raising rates would kill the business and markets while strengthen the dollar for a bit longer.
Them trying to move Yuan to open market IMO is a sign they want lower dollar, want crash the middle class and create recession/depression. Pushing for Yuan to go open market would make Yuan appreciate greatly by some views up to 40%. That would translate into goods bought from up to 40% costlier. That translates to most goods bought by middle class some 40% more expansive. That's even without lowering US rates or without assuming how much more USD would fall as CBs and other speculators start buying into Yuan market. Hyper inflation would force the FED to raise rates as everyone would be demanding higher wages and we're into the type of economy that Argentina, East European countries and Germany in the 20s experiences.
Lowering rates now would only be temporary as inflation would take hold quicker but not as quick as if Yuan went open market and the FED would have to step in and raise rates not that long after lowering them. So at present they will hold the rates IMO. But ultimately we will see transfer of wealth and elimination of much of middle class through bankruptcies the debt load that much of the public live under. The FED cares about it's own interests not that of the public but just like politicians it can't make it too obvious about showing it's true colors.
reticiiz.... I completely agree with your point of view and think you hit the nail right on the head. It's just so much hot air, and politics that are involved in the FED shell game. The only thing they know how to do is print money. The FED doesn't set rates, they follow them based on the markets. Their only choice is WHEN to cut or raise rates. The mis-named FED is no more than a very powerful group of private bankers that are simply business men and women that want to make a profit. They care about their business, not some fools that don't know how to control their personal spending habits. Gold is going up and may very well break out to new highs in a very short time. Gold is insurance against inflation and a rate cut in not going to solve any problems. It would exasperate them, and encourage more borrowing by people who are already maxed out on their credit. The speculators that are stuck with those new homes are under water. They never intended to make payments on them, they just wanted to flip them ASAP. All they have to do is walk away from them and let the bandes worry about it. The banks don't want to own those houses either, so they're going to get as much as the auction market will bring. The rate on ARM's isn't going down to encourage more speculation and unqualified borrowers. Who's going to write new mortgage loans at lower rates, when money is tight? A rate cut at this time is only wishful thinking. The FED will print more dollars because that's their ongoing program, even if they have to drop new money from helicopters. The only real money is GOLD, not paper printed at will. Does anybody remember when they were kids and asked their parents for money because they wanted something real bad? The standard answer was, "do you think money grows on trees"? Apparently, that's what the FED would like you think!
If you check out futures (5 yr to 30 yr), you will see all treasuries rallying (yields falling). The markets are already calcualating a rate cut. During '29 crash, 1/5 of the banking institution became insolvent. Since these banks are backed by the FDIC (up to $100K), FED will have to print money to bail them out. If FED cut interest rates, this would help consumers and banks refinance, and calm the markets. Not that we are out of trouble, we are in extreme dire straights, its just a question of how bad and when. If you do some research on the '29 crash, the parallels are uncannily similar to today. FED had series of low rates, home-builders had flooded market and easy money helped finance. However, the difference in '29 (which caused FED to raise rates) was the U.S. dollar was on the GOLD standard. Since we are no longer on the gold standard, the situation is quite different as to what the FED will do. If other banks start to raise jumbo rates, I think this will spook a lot of consumers as I would perceive this that those who are raising rates are doing so because they are most vulnerable / risk of sub-prime. Irrespective of what the FED does or doesn't do, the dollar will be in a free fall as our economy goes to hell in a hand-basket. If FED raised rates, and we are heading into a recession, it will take much longer to pull out. Consumers have to spend to keep the economy going, if they are unwilling or rates are to high, big ticket items will slow down and not only the banks but other sectors will fall prey, the next to go will be the auto industry. This sector is already at risk due to high competition from overseas, imagine if Ford, GM suffer same delima as Home-Builders and have to lay off tens of thousands of employees. The more I research this issue, the more I am convinced we are headed for a major collapse... we could still have a blow-off top in the DOW, 18,000 is a possibility. Its difficult to say right now. If you have access to a '29 chart of the DOW, you can see we are tracing out the exact same pattern, in '29 we did have a blow-off top. Then the DOW retraced all the way back to the bottom, this would call for the DOW falling all the way back to around 1800. The amount of monies lost, devaluation of companies and real estate will be catastrophic. Then the FED, to salvage the dollar may have to revert back to the gold standard.