Wednesday, August 15, 2007

Fed watch...

As I have stated a few times before, the Fed cannot cut now. It is between the rock of inflation expectations (using Headline inflation as opposed to core inflation as criteria) and the obvious point that additional cuts will be calamitous for the dollar due to interest rate differentials with other currencies.

And today we hear from Bill Poole, noted inflation hawk, who squelches hopes for a rate cut barring "calamity" (whatever that is...) The following is from Bloomberg:

``It's premature to say that this upset in the market is changing the course of the economy in any fundamental way,'' he said in an interview in the bank's boardroom. ``Obviously, there could be an impact, but we have to rely on some real evidence.''

Barring a ``calamity,'' there is no need to consider an emergency rate cut, Poole said. His comments were the first by a Fed official since the U.S. central bank joined counterparts in Europe and Asia to inject emergency funds after a surge in money- market rates. The Fed has added $71 billion of reserves in the past five trading days.

Poole, 70, said businesses have maintained their hiring and investment plans and banks have sufficient capital to weather the credit-market turmoil. The St. Louis Fed chief stressed that the best course is for policy makers to assess the latest economic data when they next meet Sept. 18. The comments contrast with the certainty that traders put on a rate cut next month.

``If the data confirm the market's view that the economy is sagging, we'll have to decide whether to share that view,'' said Poole, who votes on the rate-setting Federal Open Market Committee this year. He cited the monthly jobs, retail sales and industrial production reports as key gauges he'll be watching.

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