Fed Watching...
David Wessel writes about speculation that the Federal Reserve will or has cut interest rates:
Speculation of Rate Cut Intensifies Even as Fed Offers No Such Signal - WSJ.com: Speculation intensified that the Federal Reserve is going to cut interest rates soon -- or even has already done so secretly -- without any clear signal from the Fed to encourage it. The Fed's primary weapon is its influence over the federal funds interest rate, at which banks with excess reserves lend to banks that are short reserves. When demand swamped demand last week and the market interest rate rose above the target, the Fed pumped in extra cash. But at times of turmoil, it can be difficult for the Federal Reserve Bank of New York to fine tune its interventions. In recent days, the rate has traded well below the Fed's target at some points of the day – even coming close to zero at times. That has prompted some in the markets to deem this "a stealth Fed easing."...
But Federal Reserve Chairman Ben Bernanke, both in principle and in practice, has a commitment to increased transparency and the current Fed is extremely unlikely to change policy without announcement....
Trading in fed funds futures indicates markets[' expectations] are that the Fed will cut its rate target, now at 5.25%, by one-half percentage point by the end of October. St. Louis Federal Reserve President William Poole, in an interview with Bloomberg Television Wednesday, made no secret of his opposition to any Fed rate cut before its next scheduled meeting, Sept. 18.... Mr. Poole added that he sees no sign that the subprime-mortgage rout is harming the broader U.S. economy.... Fed spokesman Michelle Smith said, "President Poole is speaking for himself and not for the committee"...
Laura D'Andrea Tyson recalls something Alan Greenspan said a decade ago, during the last such liquidity event: "I feel as though I'm driving a brand-new car, and it stops, and I open up the hood and look, and under the hood doesn't look like it used too: I don't understand what I'm seeing..."
