Wild Pre-Fed Day: Open Thread

Wow — another wild and wacky day on the volatile Street of Dreams.

While no one (well, hardly anyone) expects a rate cut, many people are apparently expecting a change in Fed bias.

So? What say ye?

What is going to happen tomorrow?

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What's been said:

Discussions found on the web:
  1. Stuart commented on Aug 6

    no rate change.

    They will continue to stress their cautionary stance towards inflationary pressures while maintaining their outlook for moderate growth but with a slight change in emphasis away from a 55/45 bias towards inflationary concerns vs weakening economy to a 51/49 bias towards a slowing economy as a result of worsening credit markets and the effects of the sub-prime fallout.

  2. m3 commented on Aug 6


    5.25% all the way. some language change is definitely in the works.

    rate cuts ye want?

    rate cuts ye shall have.

    but not now.

  3. SteveC commented on Aug 6

    The bias moves to neutral. Still mention inflation concerns. They will give themselves some flexibility if the credit situation gets further out of hand.

  4. yc32 commented on Aug 6

    I still believe professor ben probably got a call from white house. if not a cut tomorrow, it will be before year end. President bush wants to leave office on a high note.

  5. jsquaredone commented on Aug 6

    I think Mr Bernanke wishes to shed the “helicopter” modifier in front of Ben.The last set of minutes were unusually hawkish.They could have addressed the same setof facts in a much less strident tone than they adopted.So I think they will surprise with only the slightest genuflection to the credit problems which bedevil the street.They will shred the”Greenspan put” in so doing.I think they view underlying domestic andglobal fundamentals as reasonably sanguine and that view provides them the opportunity to take a bit of a gamble.another 5% or so in the equity world and another round of spread widening will put fear of God in market participants .They will get message that risk is theirs to assume and this Fed will not be there to bail them out except in the most dire circumstance.This episode does not(yet) meet that test.The funds rate is unchanged and the message continues its heavy focus on inflation.bonds and stocks crater initially but the substantial losses in equities will have investors flocking quickly to treasuries.JJJ

  6. Alex Khenkin commented on Aug 6

    No Cut. Inflation still a problem. Maybe a mention of the expanding “container”?

  7. Michael Donnelly commented on Aug 6

    no change, no change in bias, some language that says they are “monitoring” or maybe even “closely monitoring” the credit markets


  8. super-anon commented on Aug 6

    I say it’s speculator attacks on short positions. I keep saying this is going to happen because this is what I’d do and it keeps happening.

    You see these horrible reports on some industry and you know all the shorts are going to pile in, so why not blow then right out for a quick buck?

  9. Andy commented on Aug 6

    No change, similar bias. Some wording indicating that “none of this” is their fault without specifying what “this” is.

  10. dave commented on Aug 6

    not sure how they address the mortgage problems because they have been saying things were ‘contained’ and it appears they were wrong about that.

    also i think any rate cut would steepen the yield curve and perhaps push mortgage rates higher and hurt the guys needing to refinance. or make all that inventory the banks are lugging just a bit heavier.

  11. reality check commented on Aug 6

    The bulls are such crybabies. The earnings ramp has surpassed the consumer spending ramp, the consumer spending ramp has surpassed the income ramp, the debt ramp has surpassed all of them. Yet you want the fed to cut so you can create some more consumer debt? The market is headed lower, 12,000 by Dec. Why? Because the funds who bought mortgage backed securities are liquidating their positions, Bear Stearns has to get bailed out and on and on.. You are going DOWN BABY !

  12. Jay Walker commented on Aug 6

    No change in bias – inflation is still a problem, so still mentioned. Nod to “monitoring” etc. credit problems or sub-prime …

    The Confused Capitalist

  13. Winston Munn commented on Aug 6

    Bernanke’s notes from the FOMC:

    First hour: doodles picture of upside down pyramid engulfed by giant tsunami about to crash and drown everyone.

    Second hour: doodles picture of George Bush as a Mad Magazine cover with the words, “What? Me worry?” over the image.

    Third hour: doodles the letters CDO while connecting four more O’s into the shape of the Olympic sympbol while wondering if Paulson has managed to get China to save everyone’s butts.

    Fourth hour: Decides against Wendy’s chile for lunch because of the beard.

    Lunch: Nothing imported from China or the U.K. Loses $420.00 to Jimmy Cayne in two rubbers of bridge.

    Fifth, Sixth, Seventh hours: Writes and rewrites personal resume’ 7 times, wondering if any universities are hiring.

    Eighth hour: Writes self reminder note to practice secret PPT handshake with Paulson.

  14. John F. commented on Aug 6

    With 10-year yields AND the dollar falling, together with (admittedly flawed) employment and growth statistics registering OK, Uncle Ben’s body would need to be invaded by Martians for him to change either rates or bias.

  15. anon commented on Aug 6

    No change to wording.
    1 additional sentence stating
    “We are not Cramer’s Bitch”

  16. ac commented on Aug 6

    Now that the credit bubble burst in June, the tightening appearence obviously doesn’t please the Fed, but until it bursts the equity bubble and more economic fallout comes to the forefront, nothing will happen.

    We see large swings in the market as the credit bubble bursts, then relief driven rally that doesn’t last any period of time because a new wave from the credit bust hits them knocking them back again. Eventually it will widen spreads to the point it drives everybody into panic, but we must be patient.

    I would argue the Fed lowers rates when the economy passes a “event horizen” or weakness that for the most part signals the event of a starting recession but maybe not the way NBER defines it. Fall of 89(October) and winter of 00(December) we saw the economy pass that event horizen thus the Fed slashed rates to compensate for the coming recession. The Fed then, thus doesn’t slash rates to “save” a economy it can’t, but battle the recession that is to come. If the Fed cuts rates in the October or November timeframe, we have passed the event horizen and recession is impossible to avoid.

  17. David commented on Aug 6

    What’s a best case scenario for the bulls that is even remotely plausible?

    I actually thought that Kudlow’s “lender of last resort” remark was a more effective “tap on the shoulder” from Wall Street than Cramer’s entertaining meltdown. Maybe a simple recitation of the role of the Fed will be enough to squeeze the market, pre-August expiry …

    I don’t think it will take much to move us higher. We’ve already had our requisite political showdown, disaster, etc. for this correction.

  18. Kaos commented on Aug 6

    Ok, here’s my prediction:

    1. No change in rates, but will change bias to neutral, or at least one gear from neutral

    2. Retain most inflation language, but acknowledge lockup in credit markets.

    3. Promote return of liquidity in private MBS market via one or both of:
    a. Open market purchases
    b. Allow for repo of AAA mortgage bonds at pre-seizure pricing levels.

  19. Eclectic commented on Aug 6

    I was going to wait until tomorrow to make my comments, but on second thought I don’t expect they’ll be any different than they are now.

    This is the last FOMC statement, found here:


    I’ll derive my personal opinion from an examination of the prior statement’s elements and then ***make my own comments addressing those elements.

    Let’s begin:

    Release Date: June 28, 2007

    For immediate release

    The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

    ***They’ll keep it there because nothing has changed since June 28.

    Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector.

    ***Nothing has changed – Even Bernanke’s expectations for early- through- mid-2007 GDP are essentially in line.

    The economy seems likely to continue to expand at a moderate pace over coming quarters.

    ***Admittedly this might seem to be too presumptive to be said currently, in view of market volatility recently and its associated risks to the economy if it continues, but other than for market dynamic reasons it could be said without apology about the economy, to date.

    Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

    ***Still essentially true, and in my opinion not needing elaboration.

    In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.

    ***To date the recent market downturn has been a tempest in a teapot, nothing of substance to shock inflation… not yet anyway. No downturn in employment has begun. No blow-up internationally; no terrorism; no trade fights amounting to administrative action. Essentially this statement holds today.

    Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

    ***Well, incoming information might change pretty quickly, and I suppose those words might, just might, change a tad if they do, but there hasn’t been a sufficient change yet to change the committee’s wording.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

    ***They were unanimous then… and they’ll be unanimous now.

    Final remarks:

    Since there have been no significant macroeconomic changes from the June statement (although I anticipate the FOMC will have access to the BLS BED statement prior to its public release – due anytime, and it may reveal something about trends in past employment not evident yet in BLS NFP reports), I expect the rate will be unchanged on Aug 7, and the wording substantially identical to the June statement. Were I a member of the FOMC, I would not only vote to keep the language identical, but I’d also campaign other members to do the same.


    Because I would not want the FOMC to be viewed as being held hostage to the ranting and chiding of Wall Street. Do you think for one minute that those two men, Bernanke and Poole, after being subjected to the insults they’ve suffered in the last few days from Jim Cramer, particularly after his remarks gained the status of ad-hoc representations of Wall Street, would allow themselves to be morally extorted for effect?

    While I’m sure they and their fellows on the FOMC would indeed react and change language and/or policy in due circumstances, these are not the circumstances they’ll perceive as appropriate.

    Bernanke and the FOMC may indeed have private worries about the possible worsening of housing, still not having proved to be invading the general economy, but I don’t expect Bernanke’s knees will be bent to this concern yet… not until it’s more than a market event of yet insubstantial proportions.

  20. speedlet commented on Aug 6

    No change in rates or bias.

    A few soothing words about closely monitoring the situation.

    Many attempts by Fed Governors to jawbone the market in the coming days and weeks.

    First rate cut by November.

  21. Florida commented on Aug 6

    Put me in the no rate change, no change in bias camp. I agree with an above poster that Bernanke wants to shed the “helicopter” moniker and would add that he probably wants to step out of Greenspan’s shadow. Plus, I think Poole’s comments of late about those getting blown up on sub-prime and alt-A getting what they deserved and the end of the Greenspan Put were very deliberately put out there.

    The price action today seems to show people have convinced themselves there’s going to be a change in at least bias, if not an outright rate cut. I think people are going to be surprised.

    Related: What’s up with the speculations/potential moves by Freddie and Fannie? That’s just stupid if they get taken down that garden path, IMHO.


  22. Winston Munn commented on Aug 6


    Brilliant as always. I think you are dead on about the psychology, as well. As for the cut or no-cut, I see it as far simpler. The Fed will ratify what the bond markets declare – at this writing according to Bloomberg the 3-month T-bill yield is at 4.90 – meaning no cut, and not much talk of cuts.

  23. Eclectic commented on Aug 6

    Thanks Winston…

    BTW, gird yourself… storm’ll probably be rolling a dung ball by soon.

    No, storm, the FOMC will not address Lincoln Greenbacks in the statement.

  24. Rob Dawg commented on Aug 6

    No change in rates. no change in bias. Inflation remains at the high end or tolerance. New negative indicator added to the Fed monitoring basket; The Booyah index.

  25. johntron commented on Aug 6

    the big unreported story…imho, US equities, real estate and bonds returns (denominated in Euros) are negative ytd.

    I wonder how all those German funds that bought up all the Class A towers are feeling. Talk about schaudenfraude.

    question now: to what extent will Europeans give up on the US equity, bond and real estate markets and repatriate.

  26. RobT commented on Aug 6

    Move to neutral toward cut. Will the dollar hold 0.8x? Probably but money to be made if it breaks below, ride it down baby.

  27. Jan Elberse commented on Aug 7

    Vote Jay Walker answer to this question as most entertaining (see 10:20am response posted).

    My take:

    – No rate change
    – Acknowledge that “credit crunch” poses downside risk to economy: i.e. bias change
    – Inflation still a concern

    This Fed has NO history of abruptly changing course. I therefore expect a relatively slow adjustment to the changing environment. The Fed is in a box: they need to lower rates to “save” the economy, but they realize the U.S. Dollar is at risk. They therefore cannot be aggressive in terms of lowering rates – we need foreign money to fund our deficits…

  28. dagger commented on Aug 7

    Surprise rate increase a la China. This will not change anything materially as the conundrum still is in effect. But the message is: speculators will be flushed.

    Actually, I think it will be no rate change and no bias change. The above was just my fantasy.

  29. jtaylor118 commented on Aug 7

    This is like those 60’s movies where the scene is just before D-Day and Americans who have just jumped from trashy jeeps outside of a London townhouse are intently gazing upon 8×10 glossies of a high-ranking Nazi commander. There is some wisp of blond in his dark Germanic hair. Some mention, perhaps is made of his astrological preferences, or his brief studies in Pittsburgh, America. His fondness for esoteric wines and opera; his rumored collection of stolen Old Master paintings, perhaps salted with a few decadent Monet’s. They conclude he is a lone wolf, a henchmen of the Fuhrer, but way more cunning…and terrible…and dangerous because he is not of the like-minded drones that populate the rest of the General Staff. Therefore, he must be eliminated, and it must happen…before “the landings.”

    Thus, I hold in my hand, my 8×10 glossy of Herr Bernanke. I see the don’s brow, the heraldic motto emblazoned across his mortar, “Veritas.” The truthful outsider who secretly wishes to belong, yet in the face of the social ostracism heaped on him by Street Preppies and Old Money, seeks to destroy the very would-be comrades he longs for by dint of his calculator brain and laser insights.

    Cut rates. Never. Change language? “I wish I could,” he thinks. But in his self-pitying stupor he…drives the…knife…deeper. “I speak with my own voice; the weak shall be culled from the herd.”

  30. svvandal commented on Aug 7

    Rate cuts on the way. If not tomorrow, soon. Agree with the other posted who mentions the presidential cycle. Buy long-dated Principal Only Treasury STRIPS for a 15% return before the turn of the year.

  31. stormrunner commented on Aug 7

    Being that they only need to change two or three words per statement per meeting, that gives them plenty of time to go over those pesky Ron Paul videos, so’s at the next Financial Services meeting they’re not taped responding duh – duh for google.

    For this con-fidence game credibility is everything. Ron rippin em a new one a couple a times a year, thats gotta be gettin old. Maybe they’ll vote on a new bill they can paste his face on just to stop all those infernal complicated questions. Like who’s printin all the money?

  32. Steve Barry commented on Aug 7

    Bernanke, under pressure from the White House to lower rates, abruptly resigns before the Fed Statement…he makes some vague references to the PPT, but says he can’t talk and will be writing a book…Greenspan is offered his old job back, but declines, saying he is shorting financials and it would be a conflict of interest. Jim Cramer is installed as Fed Chairman and cuts Fed Funds rate by 2%.

  33. a commented on Aug 7

    no change, but a few “calming” words with a little “we’ll see” thrown in.

    personally, I wonder if he remembers his paper about the “sacrifice ration” and will live up to that tome of his past.

  34. Aaron commented on Aug 7

    I think it is pretty likely there will be no change in the Fed’s bias, but they will try to say something that would appeal to the market. It is fairly likely though that the Fed will cause tommorrow to be a rough market day.

  35. Eclectic commented on Aug 7


    Very evocative… but listen; he’s from Augusta Georgia and grew up in nearby S.C. sittin’ on his pappy’s knee gettin’ spoon fed misconceptions about the Great Depression.

    It’s his widely proclaimed opinion that the GD was a monetary event associated with a collapsed money supply.

    It was no monetary event. The banks were knee-deep in money. It was a psychological event in which market participants’ perceptions of liquidity (their whole philosophical conception of what money IS) profoundly changed.

    It was a great big nationwide aggregate case of the rather limited disease we’ve experienced in sub-prime or near-prime mortgage financing lock-up over the last few weeks, and acutely during the last few days.

    It’s not rates that have flummoxed the mortgage market… It’s that the return OF money is currently viewed as dramatically more important than the return ON money.

    Consequently the mortgage market can not respond to increased liquidity provided by the Fed, and in fact attempts to expand the money supply currently are likely to be counterproductive.

    Keynes understood this about his time, but he tried to prove it empirically and overlooked the philosophical and psychological basis for money. He might as well have tried to interpret love, faith or fear mathematically, because money has an emotional counterpart that is not yielding to mathematics. That counterpart is not measureable with conventional tools; M1, M2 and M3.

    Read all my theory on this blog. Here’s a good condensed section of my remarks from a prior topic:


  36. KirkH commented on Aug 7

    “Subprime continues to be contained while Alt-A is now also contained.”

    It’s containgious.

  37. donna commented on Aug 7

    Bush couldn’t leave office on a high note if he became a castrato.

  38. mote commented on Aug 7

    “The punishment has been meted out to those who have done misdeeds and made bad judgments,”

    Buffalo Bill Poole 7/20/2007

    “We are getting good evidence that the companies and hedge funds that are being hit are the ones who deserve it.”

    Wild Bill Poole 7/20/2007

    The Fed expresses its imminent adulation for Poole’s sub-particle laser device that can pinpoint and detect adverse adhesions to greed.

    “The song remains the same.”

    It was his personal backyard project. An academic soul as sure as his license plate tells all.

  39. Greg commented on Aug 7

    I’ll chime in with the consensus in the comments here: N/C to anything of consequence in the statement.

    More significantly: Barry, you’ve inspired a great group of folks to contribute their comments. Kudos.

  40. KnotRP commented on Aug 7

    We’d lower rates but the dollar is already doing that for us.

    We’d raise rates but the credit crunch is already doing that for us.

    Hold me.

    It’s rabbit season.
    It’s duck season.
    Rabbit season, I tell ya. Shoot!
    Duck season.
    Rabbit season. Shoot!
    Rabbit season
    Duck season. Shoot!

  41. KnotRP commented on Aug 7

    We’d lower rates but the dollar is already doing that for us.

    We’d raise rates but the credit crunch is already doing that for us.

    Hold me.

    It’s rabbit season.
    It’s duck season.
    Rabbit season, I tell ya. Shoot!
    Duck season.
    Rabbit season. Shoot!
    Rabbit season
    Duck season. Shoot!

  42. Eclectic commented on Aug 7


    I’am afraid I’m gonna have to ask for your hunting and driver’s licenses please.

    Also, touch you finger to your nose… and walk this line.

  43. jules commented on Aug 7

    The Fed does not want to see massive home ownership transfer, and homeless numbers spike — especially after sir Allan Greenspoon shoved ARMs down their throats at the bottom of the rate cycle.

    Nor will an eventual rate cut seed inflation.

    The bond contaigon is real…so it IS the Fed’s job to offer a salve of words that they WILL cut rates if it does need to. Inflation has moderated, despite the protestations of many here. TIP spreads are all you need to see on that front.

    So…no cut, but a definate change in wording that the markets will appreciate.

  44. VJ commented on Aug 7

    No rate cut from Benny and the Jets, unless a sizable Wall Street firm threatens to close it’s doors because of a liquidity squeeze, causing [green] blood to run in the streets (curious who at the Fed takes that call ?).

  45. VJ commented on Aug 7

    Oh, this should go over about as well as CEO paychecks:

    Bear Stearns Files For Bankruptcy In Cayman Islands, Assets In New York

    (Bloomberg) – Bear Stearns Cos.’ decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors’ and investors’ ability to get their money back.

    While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The bank also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.


  46. Bill K commented on Aug 7

    The big stock rally on Monday took Ben Bernanke off the hook. Mr. Bernanke no longer has to heed those that have been pleading for a rate cut or dovish Fed Communique.

    Mr. Bernanke needs the market to exorcise the excesses accumulated over the past decade or so. The manic stock rallies amid the frightening declines and troubling stories that have occurred over the past two weeks allow Mr. Bernanke to remain above the fray.

  47. test commented on Aug 7

    shed the ‘Boing 787’ modifier in front of Ben? Simple, just stop ultra easy money policy, pumping M3, and printing mega-tons of dollars.

  48. test commented on Aug 7

    if Ben change biase or lower rate, then it doesn’t make him crazy, just dovish. I been saying it all along, ‘Boeing 787’ Ben is a dove and market pumper.

  49. wally commented on Aug 7

    A change in bias??? There is no such thing and no value to it if there were. The Fed is made up of who it is made up of and their mentality is their ‘bias’.
    They change a rate or they do not… the traditional ‘statement’ gives nothing and signifies nothing.
    This is a stock market propelled to highs on self-deception.

  50. jz commented on Aug 7

    no change in bias
    no change in inflation concern
    some reference to credit repricing, but absolutely no effect on conclusion of statement

    prior to statement:
    market volatile, skewing to moderate down
    after statement:
    close 180 down

  51. Dave C. commented on Aug 7

    I’m curious on what looks to be the entire stream of comments going for neutral bias or a cut.

    I believe that the Fed is much more concerned about inflation (or inflation ex inflation — that really made me laugh when Barry wrote it) then in any turmoil in asset markets or housing.

    I also believe that there is a fear that the low value of the dollar coupled with low rates of return on treasuries is a basic economic flight-risk to other debt – EU3 in particular. If you start pricing commodities like oil in Euros then USD gets more pressure.

    Put me in for raising to 5.5%, the market melting down on the news but still far from 12k levels.

  52. Robert commented on Aug 7

    Rate cut. They’ll sacrifice the dollar to save the economy. The dollar’s going down anyways, so why not send it spiraling now, when it can do some good, than later, when who knows what the situation may be?

  53. wally commented on Aug 7

    I think it is important to note Bernanke’s statements about the ‘perception’ of inflation. A lot of perception is now baked into the system by the high price of oil and the disjointed price of homes. People expect those things to stay high and they expect their incomes to rise to allow them to continue to live as they always have. Somehow that has to be worked out – those things come down or incomes go up.
    Parallel to that are business expectations for easy credit, buyouts, buybacks – ‘inflation expectations’ in business terms. That, too, must be squeezed out.

  54. anon2 commented on Aug 7

    No change to wording.
    1 additional sentence stating
    “We are not Cramer’s Bitch”

    Posted by: anon | Aug 6, 2007 10:44:00 PM


  55. Kp commented on Aug 7

    The market is going to, slowly, correct itself. Besides, I doubt BB really cares THAT much about the markets anyhow. He is concerned with the money supply and it’s roll in the economy at large. The sea is still quite full of dollars and it’s my guess that he thinks that if he continues to talk tough on inflation while leaving rates where they are things will be fine. Which for now I think is correct. Things really do need to cool down, everything is inflated and he knows it. Those looking for a rate cut have lost touch with reality.

  56. michael schumacher commented on Aug 7

    Whatever the Fed does is irrelevant to the amount of money that Hank is shoving out the door to the broker/dealers.

    Yet another “auction” today:


    From the date of July 24th to present Hank has done an auction EVERYDAY (with the exception of one day (July 31st) to the tune of over $57 Billion.

    Has anyone seen this type of action with the Treasurey in the past at all??

    Believe me the timing of all this is very suspect especially when you begin to plot the dates that these “issues” are consistently popping up that are explained away as being contained. I could contain them with a “stipend” from the gov’t every day too.

    Looks like the “buyers” have switched from the SPY to the MDY…


  57. test commented on Aug 7

    “We are not Cramer’s Bitch”??? no no no, i think Fed are Cramer’s bitches. Fed will change biase

  58. test commented on Aug 7

    “Rate cut. They’ll sacrifice the dollar to save the economy. The dollar’s going down anyways, so why not send it spiraling now, when it can do some good, than later, when who knows what the situation may be?”

    I completely agree with you.

  59. test commented on Aug 7

    ‘Boeing 747’ Jumbo Jet Ben will help bull to reach new high.

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