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AMZN 229.10-1.4%Dec 4 3:59 PM EST

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To: GST who wrote (132359)10/2/2001 2:26:38 PM
From: Oeconomicus   of 164684
 
More random thoughts on rates, which are now fact: 2.50% Fed Funds.

Fed funds and Libor represent cost of funds to banks, not borrowers. Assuming static lending spreads, banks have as much incentive to respond to loan demand as ever. Yes, the cut is stimulative.

Also, with the current slope of the yield curve, lenders have more incentive to move out the curve (unless their inflation expectations increased along with the slope). If long-term money is in greater supply, that's also stimulative.

Lastly, as "Lawrence of America" Kudlow just said on CNBC, the real rate of return on the current Fed Funds rate is approximately 2.5% as inflation is currently nil.

Bob
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