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player ready...Debate, as well as the wagering, intensified Wednesday about what the Federal Reserve’s interest-rate policy committee will do at its next meeting Oct. 30-31.
With another cable financial news channel, not to mention countless financial Web sites and blogs, competing for eyeballs, the chatter will boil over in the days ahead.
Inside the Federal Reserve system, opinions also are mixed. But in this case, investors should be heartened, not annoyed.
Conflicting facts and points of view appear in recent disclosures by the Fed. What you don’t see is an all-hands-on-deck reaction to the current housing and mortgage finance troubles. That’s good news.
Even the initial report of job losses in the economy in August did not trigger a uniform response by Fed officials. The job number was later revised to a gain.
“There’s plenty of time between now and Oct. 31 for things to change,” noted Kim Rupert, an analyst at ActionEconomics.
“Like the hounds that we are, we look for anything that would give us any information,” she said.
One focus of attention is a Fed newbie, Charles Evans, who became president of the Federal Reserve Bank of Chicago on Sept. 1. Evans is an expert on monetary policy and former director of research at the Chicago Fed. Until the end of the year, he will hold a rotating post as a voting member of the Fed’s rate policy committee.
Last month, Evans carried to the Federal Reserve Board a request by his board of directors that the rate known as the discount rate, charged to banks for emergency loans from the Fed, be cut by one-quarter percentage point.
The Fed adopted a half-point cut for the discount rate, as well as for the better-known federal funds rate, or the charge between banks that lend each other short-term money.
After minutes of the September Fed meeting were released Tuesday, analysts noted that the Chicago Fed was one of four district banks seeking a quarter-point discount rate cut. One bank, the Philadelphia Fed, proposed no change. Seven of the 12 banks sought the half-point cut.
Unlike the fed funds rate, discount rate actions do not affect general interest rates much. But the divided opinion shows Fed officials around the country were not united on the need to make emergency loans to private banks.
“It’s one of those complicated areas that people make too much of a big deal about,” said Diane Swonk, chief economist at Mesirow Financial. “Different parts of the country were feeling the pinch more than others.”
A report by the Chicago Fed issued Wednesday suggests that in the Midwest the urgency for another rate cut is muted.
Among reported comments by business leaders: “Labor market conditions were mixed by industry and location. … Overall wage and cost pressures were similar to those in the previous reporting period. … The slowdown in housing markets was a significant risk for the [auto] industry.”
Meanwhile, market-determined interest rates here and abroad are becoming friendlier. Yields on 2-year Treasury notes slipped below 4 percent Wednesday. Market rates have been returning to more normal relationships with one another.
As for the Fed coming rate action, “it’s going to be almost a crapshoot,” said Rupert. Again, that’s good news.
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