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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: yard_man who wrote (201330)10/31/2002 12:03:53 PM
From: ild  Read Replies (2) of 436258
 
11:59 AM
The Fed might cut interest rates tomorrow if the employment report is substantially weaker than expectations. The report would have to a shocker, however, with job losses totaling 200k or so in September. The Fed would cut rates on the notion that deterioration in the labor market might spur weakness in consumer spending, the main force keeping the economy afloat. A weak jobs report would reduce the chances of a self-reinforcing expansion and raise the risk of a double-dip recession. In addition, a weak report would worsen conditions in the financial markets and thus create new demands for liquidity in the financial system.

The precedent for Fed rate action on employment Fridays dates back to the recession of July 1990-March 1991. During and after the recession, the Fed lowered interest rates five times on employment Friday:

December 7th, 1990 cut 25 basis points
February 1st, 1991 cut 50 basis points
March 8th, 1991 cut 25 basis points
December 6th, 1991 cut 25 basis points
September 4th, 1992 cut 25 basis points

These days, inter-meeting rate cuts are seen less frequently than in the past. This is an added reason why it would take material weakness in the jobs data to prompt a Fed rate cut. Nevertheless, given the fragility of the expansion as well as the current state of investor confidence, the Fed would not likely wait for their November 6th FOMC meeting to respond to new evidence of meaningful weakening in the U.S. economy.

bondtalk.com
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