Dollar hits low as Fed chief hints at rate cut

Financial Times ^ | February 28, 2008 | Krishna Guha

[SkyPilot]

The dollar fell to a fresh record low against the euro on Wednesday as Ben Bernanke signalled that the Federal Reserve is likely to cut interest rates again next month.

The single European currency breached $1.51 after the Fed chairman made it clear that the US central bank remained firmly focused on the risks to growth, in spite of some increase in inflation risk following a run of bad price reports.

The Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks”, Mr Bernanke told Congress.

[SkyPilot]

I think we should just adopt a one world currency, and have a tatoo on our right hand or forehead so we can use ATMs, cash registers, and credit card holders without plastic.

[Brian S. Fitzgerald]

"wonder how long I can keep up this charade?"

[fhayek]

Sooner or later, after all the rate cuts and stimulus payments are made, we are going to have to address the falling value of the dollar.

[IllumiNaughtyByNature]

Isnt the falling dollar what started the last real estate boom with the Japanese investing in commercial real estate? Remember the cries of “All out buildings are being bought by foreign investment” ? I didn’t see a single buildng get “exported” but we sure got a boat load of cash to show for it.

[fhayek]

Every economic development helps some and hurts some. But the nightmare scenario involves foreigners dumping the dollar and the Fed having to dramatically raise interest rates to stem the fall. This could lead to a severe recession.

[IllumiNaughtyByNature]

I do not believe that we will see the foreign markets drop the standard of the dollar for a very long time if ever. This is cyclical and to make a move like that would have imact for decades to come. It’s fluff for the microwave world to think and talk about it but the world market is a slow cooking oven. IMO.

[Perdogg]

I think people here are too harsh on Bernanke. He’s only cleaning up Greenspan’s mess. It’s not easy and choices that are made aren’t always painless.

Having said that I think the risk of inflation out weighs the benefit of a rate cut this late in the game, although I am not convinced we are in or heading into a recession.

[rbg81]

I think people here are too harsh on Bernanke

---

Not really—he is an idiot. Really. Its interesting to note that loan rates have NOT gone done, but CD rates have gone through the floor. This spead allows the banks to recover from their excesses of the last few years. He is doing exactly what Wall Street wants. The problem is that Wall Street cannot see beyond the next quarter, or in some cases the next stock session. Sure, the market rallies for a day or two after he drops interest rates, but then falls again.

The real problem is that if he keeps this up, we will see Third World style inflation—and then there will be hell to pay.

[Perdogg]

What are your economic credentials? Buying Howard Ruff's newsletter?

[Freedom_Is_Not_Free]

[SkyPilot]

I do not believe that we will see the foreign markets drop the standard of the dollar for a very long time if ever. This is cyclical and to make a move like that would have imact for decades to come.

Happy Days are Here Again.

[familyop]

"...in spite of some increase in inflation risk following a run of bad price reports."

Oh, well, it couldn't have anything to do with an ethanol subsidy, oil or import freight fuel. It was 'cause everybody's so rich and full of lowly consumer demand.

[liberallarry]

In a 2002 speech he talked about what to do if the U.S. experienced deflation, something the modern Fed has never faced.

First, lower Fed funds rates as much as possible (until zero).
Then, mess around with longer term rates and unconventional securities.
Finally, if all else fails, run the printing presses like crazy.

He didn't mention the limitation imposed on the policy of last resort (printing presses) by our huge foreign debt...but I'm sure he's thinking about that now.

[fso301]

Not really—he is an idiot. Really. Its interesting to note that loan rates have NOT gone done, but CD rates have gone through the floor. This spead allows the banks to recover from their excesses of the last few years. He is doing exactly what Wall Street wants. The problem is that Wall Street cannot see beyond the next quarter, or in some cases the next stock session. Sure, the market rallies for a day or two after he drops interest rates, but then falls again

That's because the Fed funds rate only influences short term rates. Long term rates are based off the 10 year treasury and recent auctions have been poorly subscribed which is why the long term rates are inching up while short term rates are falling.

[familyop]

As soon as enough business chiefs find out that oil won’t go down under our “recession” pressure, they’ll start working again. The alternative would be laying a chunk of the middle class off...and Obama.

[Age of Reason]

That’s nothing.

Take a look at this: http://www.house.gov/apps/list/hearing/financialsvcs_dem/roubini022608.pdf

Excerpts:

“Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? . . . . the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.

“The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.”

[rbg81]

Truth in advertising: I have NO formal economic credentials. However, I have managed to get pretty wealthy despite that “handicap”. Also:
a. I know people who work on Wall Street (neighbors actually). They are the biggest asses one can imagine. Very image conscious, very cliqish, and very short sighted. They also talk about Berneke like he is their poodle.
b. I am pretty good at reading body language. Mr. Berneke is doing things he doesn’t believe are right due to pressure from his Wall Street buddies.

[ari-freedom]

by doing what? he didn’t take out the excess $ from the system.

Steve Forbes:
The Federal Reserve’s aggressive slashing of interest rates guarantees there will be no recession this year. But it has only postponed the inevitable reckoning from the ever weakening dollar. Whenever a country debases its money, it pays a price. We and the world are paying for the Fed’s excess money creation of 2004—05 with sky-high commodity prices, the aftermath of the subprime mortgage crisis and the disaster that has resulted from the efforts of our banks to create exotic instruments that wouldn’t show up on their balance sheets.

Who knows when the next catastrophe will hit or what the makeup of it will be? But it will happen.

You can also bet on this: Eventually interest rates will move up sharply from currently low levels.

We’ve got a reprieve—but it’s only that, a reprieve.

[VegasCowboy]

Its interesting to note that loan rates have NOT gone done, but CD rates have gone through the floor.

Most commercial loans are priced off prime or LIBOR. They have most certainly come down. Do a quick scan of bank 10-Ks filed since year-end, and point out any that show an increase in their net interest margin since last year. I'll be shocked if you can find any.

As to mortgage rates, check out this link for the three year trends. http://mortgage-x.com/trends.htm

Rates have come up of late, but that's because of the steepening of the yield curve. This is determined by market forces, not the Fed.

[VegasCowboy]

Then, mess around with longer term rates and unconventional securities.

I'm not familiar with this speech. The Fed has no control over long-term rates, so I wonder in what context he said this?