$1,030 …
The Fed will chop 75-100 basis points tomorrow, on top of the $30 billion they just printed to backstop JPM’s “rescue” of Bear Stearns.
The Fed has already implemented yet another round of smoke-and-mirrors “liquidity facilities” which amount to a deeper interest rate cut, without so much as admitting it.
March 16 (Bloomberg) — The Federal Reserve, in an emergency weekend decision, cut the rate on direct loans to commercial banks and opened up borrowing at the rate to primary dealers in government securities.
In an announcement before the start of trading on the Tokyo Stock Exchange, the Fed lowered its so-called discount rate by a quarter of a percentage point to 3.25 percent. The central bank also approved the financing of JPMorgan Chase & Co.’s purchase of Bear Stearns Cos., including support for as much as $30 billion of Bear’s assets.
Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.
“The Fed needed to act decisively, and I believe it has,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “It is a crisis of confidence that these measures are trying to” alleviate, he said.
The dollar tumbled to a 12-year low against the yen after the announcement and Treasury notes rallied in Asian trading. The Nikkei 225 Stock Average lost 3.1 percent at 9:35 a.m. in Tokyo.
From tomorrow, primary dealers will be able to borrow at the rate under a new lending facility, to be in place for at least six months, the Fed said. The Fed will accept a “broad range” of investment-grade collateral.
Bernanke Offers Assurances
“These steps will provide financial institutions with greater assurance of access to funds,” Bernanke said during a conference call with reporters after the announcement.
Treasury Secretary Henry Paulson in a statement said “I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets.”
Investors expect the Fed to lower its benchmark rate by as much as a full percentage point, to 2 percent, when policy makers meet March 18. That would exceed the 0.75-point emergency reduction on Jan. 22, which is the largest Since the overnight interbank lending rate became the main tool of monetary policy about two decades ago.
“Clearly, the Fed is trying to provide more liquidity to prevent a more vicious cycle and race to the bottom,” said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, which oversees $200 billion. “The problem is there’s so much concern about credit quality that now there are solvency issues, and it’s something the Fed has a more difficult time dealing with.”
Inflation is running somewhere between 4 and 8 percent, and more Fed cuts are on the way. Dollar-holding is for the financially suicidal …
I am grateful to have joined the last, greatest leg of the metals supercycle. Gold will finish out this cycle at well over $2,500 an ounce … especially once the euro falls from its unsustainably lofty peak. But, that’s for later.
