ZERO! Slash at US Fed — Panic buying to follow?
By Tom on Dec 17, 2008 in Business of Entertaining
The central bank opted to lower the federal funds rate to a targeted range of between zero and 0.25%. That’s the lowest level on record, going back to 1954. Does it really mean anything? Not really, the market has priced in 0% for some time, now the US Fed has finally caught up.
NOW, the interesting part, in reviewing the Fed’s decision today, was seeing an implicit desire to buy mortgage backed securities and agency bonds. So really the US Fed is the lender of choice in the US right now with the implied pledge to pump limitless money into the market.
Maybe the US Government should have just bailed out consumers directly right at the start…Case in point, in 1999, Japan made some similar moves – these had no real impact. Given this is one of the last weapons left within the Fed, lets hope it works.
Here’s where it becomes interesting—
IF we view the current situation as a true crisis in confidence — ie. “Emotional Sales” are down drastically because people are worried – so people aren’t spending in retail (side note – November Video Games near $3B – still showing strength as a “recession proof industry” , big auto hurting and looking still for bailouts, people are not buying houses, and investors have the S&P ‘over-sold’ when compared to historical levels.
IF this latest move by the fed works — are we going to see PANIC BUYING across the board?
Tags: USFed, Zero interest rate, November Video Game Sales, retail spending, central bank
6 Comment(s)
By wildcherry on Dec 18, 2008 | Reply
Japan held their interest rate close to zero for 10 yrs after the Nikkei suffer the 1987 crash. Up to this day, the Japanese have learn to diversify their investment by investing abroad and in other foreign currencies.
US citizens should learn the same. The value of depreciating dollar can be worrisome in the near future.
By business review on Dec 19, 2008 | Reply
a good analysis.
By lvs on Dec 19, 2008 | Reply
I am no longer sure that this is a crisis in confidence. Or at least it no longer is that. Now I think it has started to pinch where it hurts. People have really stopped spending and that has caused industries to cut down production leading to job cuts. So what started out as a confidence thing seems to have become a real problem.
Yes if it were just a confidence problem we would see PANIC BUYING as you have mentioned.
By addict on Dec 20, 2008 | Reply
ehm nice analisa…
By Amol Wagh on Mar 10, 2009 | Reply
hey tom, Your market knowledge and analysis is so strong. I really appriciate it.
By Tellie on Apr 14, 2009 | Reply
I think the government is prolonging the inevitable. They should allow the companies that aren’t pulling their weight to go under. How much longer do they expect to keep them afloat?