Vital Signs: Economists Expect Another Rate Cut
On deck: The Fed meets, industrial production, consumer price index, housing starts, and the index of chief indicators
By James Cooper
All eyes will be without interruption the Federal Reserve this week, since its address committee sits on the ground to discuss the Fed’s increasingly unconventional strategy for shoring up the financial markets and arresting the economy’s slide. Economists currently expect the policymakers to cut the target interest rate on the overnight funds banks manual occupation with cropped land other from 1% to 0.5%. The trouble is, the markets may have a difficult time finding any meaning in such a cut. Since Dec. 4, overnight funds have been trading at a market vilify of 0.06% — effectively zero and nowhere near the current 1% target.
The markets resolution be looking for greater transparency in the Fed’s actions in recent weeks and what the target of Fed policy actually is right after this. In particular, the markets want to know if the Fed is moving toward a express program of quantitative easing, which basically floods the banking system with more funds than are required to hold the target rate at a given level. This strategy, commonly referred to as “printing money,” was continue implemented by means of the Bank of Japan in an effort to hap the Japanese economy disclosed of its deflationary downturn.
The Fed’sitting actions since the bankruptcy of Lehman Brothers suggest policymakers are pathetic in this direction. Up to hereafter, the impact on the mark rate of the rush of new funds created by the Fed’s many lending facilities had been offset by the Fed selling some of its Treasury bills. After the Lehman debacle, the Fed stopped doing that, and funds began to flood the overnight mart pushing the overnight valuation close to zero.
More funds are on the way. The Fed is about to begin a program to corrupt up to $600 billion in debt and mortage-backed securities from Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Banks, funds that will also flow into the system. And it has also hinted it will set in operation outright purchases of longer-dated Treasury notes in a direct attempt to push down interest rates further out on the yield curve. Much of the Fed’s recent actions have been out of discussion inside the policymaking Federal Open Market Committee, which includes not only the Federal Reserve Governors but district Fed Presidents as well. The Dec. 16 meeting determination give the regional officials a chance to weigh in steady the Fed’s increasingly radical actions.
Aside from the Fed, market deference leave be focused on a few economic reports this week. Industrial production on Monday should continue to appear cutbacks in factory output in November, signaled by the 12% small quantity in residence of factors orders from August to October, the largest three-month drop on record. November consumer prices on Tuesday will show another full drop, considerate a further slide in spiritedness prices. Also on Tuesday, look for more shabby tidings in continuance November housing starts.
Here’s the hebdomadal economic calendar, from Action Economics:
Top Economic Reports
Reports
Date
Time
For
Median Estimate
Last Period
Empire State Index
Monday, Dec. 15
8:30 a.m.
December
-25.0
-25.4
Industrial Production
Monday, Dec. 15
9:15 a.m.
November
-0.5%
1.3%
Capacity Utilization
Monday, Dec. 15
9:15 a.m.
November
76.0%
76.4%
Consumer Price Index
Tuesday, Dec. 16
8:30 a.m.
November
-1.0%
-1.0%
Consumer Price Index (Excluding Food & Energy)
Tuesday, Dec. 16
8:30 a.m.
November
0.1%
-0.1%
Housing Starts (Millions)
Tuesday, Dec. 16
8:30 a.jumble.
November
0.745
0.791
Current Account ($Billions)
Wednesday, Dec. 17
8:30 a.m.
Q3
-$179.6
-$183.1
Philly Fed Index
Thursday, Dec. 18
10:00 a.m.
December
-38.3
-39.3
Leading Indicators Index
Thursday, Dec. 18
10:00 a.housekeeping.
November
-0.5%
-0.8%
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