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Strategies & Market Trends : John Pitera's Market Laboratory
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To: Louis V. Lambrecht who wrote (8107)8/16/2007 7:50:31 AM
From: John Pitera  Read Replies (1) of 33421
 
Fed Has Already Introduced `Temporary' Easing: Chart of the Day

By Mark Gilbert

Aug. 16 (Bloomberg) -- The U.S. Federal Reserve has already introduced a ``temporary'' reduction in interest rates by driving the four-week Treasury bill below the Fed funds target, says Charles Diebel, a strategist at Nomura International in London.

``It is clear that a `temporary' easing has been put in place by the Fed,'' Diebel wrote in a research note today. ``This is what has really spooked markets overnight.''

The chart of the day shows the four-week bill rate has declined to 4 percent, below the Fed target of 5.25 percent and the actual rate, which dropped to as low as 1 percent last week and rebounded to 5.25 percent yesterday from 5 percent the day before.

``If this artificial suppression of short-term rates has to be maintained, which we suspect it will, then the Fed will eventually formalize the de facto ease with a move lower in the official target,'' Diebel wrote. ``It is likely to be at least a 50 basis-point move if and when it comes.''

William Poole, president of the St. Louis Federal Reserve Bank, said yesterday that the subprime mortgage rout doesn't threaten U.S. economic growth, and only a ``calamity'' would justify an interest-rate cut now. The Fed's next scheduled meeting is on Sept. 18.

To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net

Last Updated: August 16, 2007 06:32 EDT
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