Central Bankers in Coordinated Rate Cuts

``What's troubling the market'' is concern about ``the solvency and losses of major institutions. The market is uneasy because it doesn't have a lot of information on what the depth of those losses will be."

Bloomberg
Fed, ECB, Central Banks Cut Rates in Coordinated Move
By Scott Lanman

Oct. 8 (Bloomberg) -- The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.

Today's decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937; Japan's benchmark today had the worst drop in two decades. Policy makers are also aiming to unfreeze credit markets after the premium on the three-month London interbank offered rate over the Fed's main rate doubled in two weeks to a record.

``They are throwing the kitchen sink in to try to find stability,'' said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta. ``They are clearly trying to get the transmission started again'' after a freeze-up of money markets.

The Fed reduced its benchmark rate to 1.5 percent. The ECB's main rate is now 3.75 percent; Canada's fell to 2.5 percent; the U.K.'s rate dropped to 4.5 percent; and Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

Official Statement

``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.'' ...

In more typical market conditions, stocks rally when a Fed chief indicates he'll reduce rates. Now, Bernanke's message may have less power because traders already anticipated for weeks that policy makers would need to make that move, and because of rising concern even rate cuts may do little to immediately help banks scrambling to reduce their vulnerability to loan losses.

``In normal times, a rate cut would have a positive effect,'' Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, said yesterday. ``What's troubling the market'' is concern about ``the solvency and losses of major institutions. The market is uneasy because it doesn't have a lot of information on what the depth of those losses will be.''

Charts in the Babson Style for Mardi Sanglant 7 October 2008

The US Dollar Long Term Chart and Four Scenarios

Current Situation


Scenario 1: Failure at the Neckline with a backtest and swift decline


Scenario 2: Complex Double Top at Neckline


Scenario 3: A High that Stresses the 83 Pivot Point.


Scenario 4: The Pivot is Exceeded and 84 is Taken Out With at Least Two Weekly Closes

The Fed Signals Rate Cut; Remains In Close Contact with Treasury as Banking Crisis Deepens

The Fed is trying to use all the tools at their disposal to ensure the safety of the banking system.

A rate cut at this point does nothing in particular and is largely cosmetic given the special facilites and the new rate cut 'floor' from the payment of interest on reserves.

However, Ben is going to keep throwing junk at the market until it calms down. Or breaks down.

Bernanke Signals Fed May Cut Rates as Crisis Deepens
By Scott Lanman

Oct. 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled policy makers are ready to lower interest rates as the credit freeze poses an escalating danger to the economy.

The world financial system is under ``extraordinary stress'' and history shows that severe instability ``can take a heavy toll on the broader economy if left unchecked,'' Bernanke said in a speech in Washington. ``The Federal Reserve will need to consider whether the current stance of policy remains appropriate.''

Today's remarks indicate the central bank's record loans to unblock credit markets are insufficient to prevent a deeper economic downturn. Investors increased bets the Fed will cut its main rate by as much as three-quarters of a point this month after stock indexes slumped to four-year lows and premiums on loans between banks climbed to a record.

``They are going to cut interest rates,'' said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. ``It does not make sense to wait.''

Stocks slid after Bernanke's remarks failed to assuage investors' concerns about deteriorating financial markets, with the Standard & Poor's 500 Stock Index losing 3.6 percent to 1,019.34 at 3:30 p.m. in New York.

Minutes of the Federal Open Market Committee's Sept. 16 meeting, released in Washington today, showed that some officials then saw a need for a rate cut should there be a ``significant worsening of the growth outlook...''