Analysts Speculate Possible Rate Cut In The Making As Treasury Yields Fall

Source : All Headline News (AHN)
Date : Wednesday, August 21, 2007
Writer : AHN / Jacob Cherian

Washington, DC (AHN) - Treasury prices continued to climb Tuesday, pushing yields lower. The benchmark 10-year note was up, yielding 4.59 percent.

The rise in bond prices comes ahead of a key meeting between Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Senate Banking Committee Chairman Chris Dodd.

Some analysts are speculating that a possible rate cut by the Fed is in the making, since credit markets were still nervous Monday, despite a cut in the discount window rate.

As of 11:54 am EDT, the Dow Jones industrial average was up 0.21 percent, the NASDAQ composite index up 0.39 percent, and the S and P 500 index gained 0.42 percent.

"Friday's discount rate cut by the [Fed] helped bring a little order to the Fed funds market but the slump in US Treasury bill yields signal that risk aversion amongst short-end investors is still intense," said Rob Minikin, an analyst at Lombard Research in London, reports CBS MarketWatch.

Treasury Secretary Henry Paulson said in an interview with CNBC, "We are going to work through this problem just fine," in an attempt to calm jittery investors on Tuesday.

Paulson stressed that the U.S. economy remains is fundamentally sound and that it should be able to withstand the turmoil in the markets.

Meanwhile, Goldman Sachs injected $2 billion into one of its hedge funds last week, signaling the contagion of credit problems beyond home mortgages to those with bad credit histories to other borrowers.

On Tuesday, in desperate efforts to quell the strain on markets, the Federal Reserve added another $3.75 billion into money markets in the latest of several cash transfusions totaling over $100 billion.

According to a report by Bloomberg, the Fed will not know if the August 17th cut in discount rates will have a calming effect on markets for several days. Fed officials say they expect some turbulence since banks are cautious about the collateral involved.

"What the Fed wants to do is buy time to sort these things out,'' said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Fed Chief Bernanke is trying to avoid a rate cut to the lending rate between banks, and aiming to stabilize liquidity in markets, say analysts.

The Fed doesn't want to bail anybody out,'' said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, reports Bloomberg News. "If they can get through the next couple of weeks, maybe cooler heads will prevail.''

Stocks Rally After Federal Panel On Credit Crisis Reassures Jittery Investors

Source : All Headline News (AHN)
Date : Wednesday, August 21, 2007
Writer : AHN / Jacob Cherian

Washington, D.C. (AHN) - After a closed-door meeting with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, Sen. Chris Dodd, (D-Conn.), said that the Fed is prepared to utilize all the tools available to address the credit crisis in the U.S. financial system.

Dodd currently the chairman of the Senate Banking Committee told reporters in Washington on Tuesday that he did not pressure Bernanke to lower the federal funds rate, reports CBS MarketWatch.

Stocks rallied after Dodd's reassurances that the Fed is ready to address the credit crisis that has been wreaking havoc on markets. By 1:13 pm Eastern, the Dow was down slightly, the NASDAQ was up 0.40 percent, while the S and P 500 gained 0.15 percent.

The Senator, who is seeking the Democratic party's nomination to the White House, said the meeting was positive, but urged the Fed to take action.

"It's time to act," Dodd said. "The ball is really in their court."

He also said banks should take advantage of the discount window rate cut that has been put in place for banks that borrow, since August 17. The central bank cut the discount rate half a percent to 5.75 percent to pump more cash to companies in need of short-term financing. However, Fed watchers speculate that it might take several days before the outcome of the slashed discount rates is known.

Dodd said, "A little more moral suasion would be helpful." Adding, "The Fed gets it and understands it," but "the Treasury doesn't," reports CBS News.

According to a Bloomberg report, interest-rate futures reveal that traders are speculating the credit crisis will eventually force Bernanke to ease monetary policy for the first time in four years.