Well, here’s one thought to ponder:
Since the Fed has been using the funds/discount rate as their primary liquidity tactic in the last couple of meeting periods, we have only 300 basis points left to play with.
And we have not started the wave of option-ARM loan resets yet.
There’s a veritable mountain of poo out there waiting to be launched at fan blades...
Well the first wave of big ARM resets from low initial rates starts around March. The Fed has engineered a 2.5% reduction in LIBOR since the credit crisis started last August. That has cut the size of most ARM reset hits by something like a factor of two. If LIBOR goes down another percent, there won't by an ARM reset wave - rates will be back to where they were when the things were written.