Give Nouriel Roubini a pat on the back

We are off to Costco for the better part of the rest of the day, doing our small part as American consumers in support of the U.S. economy during its time of need.

[One of the few downsides to living so far away from major population centers is that you can't get low-priced Kirkland products at any of the local stores. Oh well, it's a very small price that we are more than happy to pay.]

While we're gone, the Federal Reserve is sure to announce another reduction in short-term interest rates. They will succeed in making money cheaper but that doesn't necessarily mean that banks will be any more willing to lend it out.

With this move, the rate cut total for the year 2007 will come to at least one percent - an amount that, six months ago, would have seemed ludicrous to all but one man:

Economist Nouriel Roubini over at Roubini Global EconoMonitor.

Even your humble scribe, in his 2007 predictions, did not foresee such a monetary easing this year, although there was a caveat having to do with "big external events". The credit crisis surely qualifies as a big event, but certainly not an external one, though, come to think of it, since the Fed outsourced much of credit creation to what they call the "shadow banking system" at Pimco, this really is an external event to the Federal Reserve.

4. Interest Rates Will Remain Unchanged

Absent any big external events, the Fed will leave short-term rates at 5.25 percent and long-term rates will hover around 4.5 to 4.7 percent. Nothing will change. The Fed will talk tough on inflation when it's appropriate and threaten to raise rates while at the same time gobs and gobs of money and credit will be created in an attempt to keep asset prices elevated.

This gambit will be successful for equities and commodities, but not for housing. The Fed would much prefer that equities and housing continue to rise in price rather than equities and commodities, but you don't always get what you want.

It looks like it's going to be another pretty good year in the predictions department for yours truly, but back to Nouriel and his bold early-2007 interest rate call.

A reference is not available (if anyone has a link, please post it in the comments section), but, this electronically scribbled note was located:

3/21/07, Nouriel Roubini

I expect the Fed to ease by at least 100bps this year and start easing earlier than expected by the markets.

Remember that this came at a time of the year when long-term rates had just begun to rise to what now seem ridiculously high levels of over five percent in June. Of course that was before the events of August.

Well done. Everyone give Nouriel a pat on the back.