Rate Cut Expected
Financial markets are pricing in an estimated drop in the Fed Funds Rate to 2% will be announced in the upcoming Fed Open Market Committee Meeting. The next meeting takes place March 18, 2008, with minutes - and the rate announcement - being released the second day of the meeting. So, expect some news on March 19, 2008, likely around lunchtime, Denver time.
If the market is correct and the Fed drops the Fed Funds Rate to 2%, it will represent the lowest rate since November 10, 2004. The Fed Funds Rate is at a multi-year low of 3%, the lowest since May 3, 2005.
See the history of the Fed Funds Rate here:
Investors expect the Fed to lower its separate benchmark rate by as much as a percentage point, to 2 percent, when policy makers meet tomorrow. That would exceed the 0.75-point emergency reduction on Jan. 22, which is the largest since the overnight interbank lending rate became the main tool of monetary policy about two decades ago. Yesterday's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction.
The central bank on March 11 announced it will for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities held by dealers to facilitate market- making. It holds about $713 billion of Treasuries on its balance sheet.
On March 7, the Fed said it would make $100 billion available through repurchase agreements, where the Fed loans cash in return for assets including mortgage debt issued by Fannie Mae and Freddie Mac.
New York Fed President Timothy Geithner said on the call that ``this is designed to help get liquidity to where it can help play an appropriate role in helping address the range of challenges facing particularly asset-backed securities markets.''
Fed governors agreed that the ``unusual and exigent circumstances,'' as stated in the Federal Reserve Act, existed for approving the lending to primary dealers, a Fed official said on the conference call. The actions were approved by all five members, a Fed official said.
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