Tuesday, January 15, 2008
Get ready for some real fun:
From the Telegraph (UK):
ECB warns crashing dollar may stop Fed cuts
Falling dollar prevents fed cuts?
That makes no sense. The US economy is going under, and if the fed takes rates down to 1% as fast as possible it might, just might, make the downturn shorter and less brutal.
There's no guarantee that rate cuts would even work though, since mortgage rates aren't under direct fed control, and have so far proven immune to the cuts at the short end of the yield curve.
Fiscal measures? Maybe in 2009, but if the bond market sees that causing increased TReasury bond issuance (which it would since tax hikes are economic and political suicide) or being inflationary, then long rates rise, and mortgage rates with them.
IF the fed doesn't cut now, right now, it just means they have to cut more later, and also increases the odds of inflationary fiscal rescue measures. Inflation would finish off the currency once and for all.