Wikinvest Wire

And ... a half point it is!

Wednesday, October 29, 2008

With today's half-point cut to short-term interest rates, the Federal Reserve is once again back out "in front of the curve"... well, at least in front of the curve from a few years ago.
IMAGEThis morning's announcement that the Fed has once again lowered short-term interest rates to the freakishly low level of 1.0 percent was widely expected, particularly since the effective Fed funds rate has been below that level for weeks now, averaging just 0.82 percent since October 10th.

There were some major changes to the policy statement as shown below. In fact, Compare It!, the software program used to detect subtle changes to the wording was stymied, finding many, many more differences (in red) than similarities (in blue).
IMAGEIt's good to know that certain passages have remained unchanged - that "the Committee expects inflation to moderate" and they "will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability".

As for what has changed, there is a rather sobering assessment of the current state of the rapidly deteriorating economy with special emphasis given to the slowdown in consumer spending and business spending.

They really do "monitor economic and financial developments" and "act as needed".

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2 comments:

shayre said...

Should this graph be adjusted to include the fact that the Fed now pays interest on capital reserves held with the Fed? Especially considering that the only reserves banks have these days have been borrowed from the Fed?

Would that not bring the real Fed Fund Rate down to 0.25%?

Sukh Hayre
Vancouver, BC

Anonymous said...

Treasury Secretary Henry Paulson has predictably screwed the taxpayer by making a sweetheart deal with Wells Fargo in the TARP stock purchase, which was completed today.

The taxpayer gives: $25B

The taxpayer gets:

1. $25B worth of preferred stock (25,000 shares * $1M/share)
2. dividend rate not divulged, likley less than market rate
3. voting rights not divulged, likely none
4. $3.75B worth of 10-year warrants to buy common stock at $34.01/share
(110.261688 Mshares * $34.01/share= 3.75B, or 15.00% of the 25B).
5. no conversion rights

My opinion:

This is an incredibly lousy deal. Only 15% warrants, and at today’s inflated price. Expect WFC to drop like a rock now that the deal is done. WFC reduced their loss reserves in Q3 in order to prop up earnings and therefore also prop up stock price until the deal was done.

Those of you who are pitchfork-minded, feel free to stage a demonstration in front of the Treasury Building.

Source: Yahoo news
http://biz.yahoo.com/bw/081029/20081029006509.html

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