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Fed Policy Outlook
November 21, 2008
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Analytical Contacts:Kim Rupert +1 650-401-6727 kim.rupert@actioneconomics.com
Michael Wallace + 1 650-563-9370 michael.wallace@actioneconomics.com |
 Friday, November 21, 2008
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Action Bullets
- We expect the FOMC to lower the benchmark funds rate 50 bps to 0.50% at its December 16 meeting (Fed announced this will be a 2-day meeting beginning on December 15), especially after the ugly October emplpoyment report and persistant climb in jobless claims
- FOMC dramatically lowered its forecasts for growth, job, and inflation as revealed in October minutes
- Fed amended the formula it will pay on excess reserves equal to the lowest target rate in effect during the reserve maintenance period as of Nov 6. (Fed initially announced changes to Regulation D on Oct 6)
- FOMC cut funds rate target 50 bps to 1% at its October 28, 29 policy meeting
- Bernanke endorsed a second stimulus package (Oct 20) amid risk of a protracted decline in economic growth
- Fed cut rates 50 bps to 1.50% funds target on Oct 8 in an emergency coordinated move in conjunction with the ECB, BoE, BoC, SNB, Riksbank
- Fed funds futures lower on profit taking after panic rally Thursday amid a stock meltdown and deepening recession fears; implied rates trade at 0.45% for Nov and 0.50% for Dec; effective funds rate averaging 0.316% for Nov to date
- FOMC minutes to Aug 5 policy meeting showed members "generally" leaning toward a hike as next move, though timing and extent dependent on economic and financial conditions
- Discount rate minutes from August 18-September 11 meetings showed split views, with Dallas and KC Fed's requesting a 25 bp hike in August, with remaining 10 banks requesting no change. By September 11 only KC requested a hike
- Results of Nov 3 $150 bln 84-day TAF auction: $138.9 bln in bids for a 0.93 cover; 0.60% stop out rate, on top of the 0.60% minimum bid rate; there were 89 bidders
- Results of Nov 4 $37.5 bln TSLF showed a 1.15 cover, and 0.25% stop out rate
- NY Fed announced its TOP program, TSLF Options Program, offering options on $50 bln in TSLF loans that will span the September quarter end; auctions on August 27 and September 10
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