More Rate Cuts to Come - and this belief will help carry the market higher
The Fed has an academic focus - or at least was accused of being too academic. By that , critics meant it was uninterested in the turmoil of the real world of foreclosures and credit collapse.
The action of the.50 % point cuts on Tuesday give a signal that the fed is aware and active in the real world.
Now the " worry " and talk on CNBC will focus on the next Fed meeting and the direction of Fed bias.
Bill Gross thinks he knows - and he has the world's largest bond fund to follow his prophecy. gross sees another full percentage point lowering - according to an interview on Sept . 18.
Housing will provide the impetus to lower and lower fed fund yields,'' Gross said in an interview from Newport Beach, California.
Confidence among U.S. home builders tied a record low in September as more lending restrictions and higher borrowing costs concerned buyers, a private report showed today. To keep economic growth near 2.5 percent or 3 percent, that implies ``ultimately at least a 3.75 percent destination for fed funds,'' Gross said.
Only twice in the last 20 years has the Fed started a rate cutting cycle with a half-point reduction, Gross said. Both times, the economy fell into recession, he said. ``I'm not suggesting we do that here,'' Gross said.
``I'm suggesting the Fed has their eye on housing.''
Gross, who manages the $104.4 billion Pimco Total Return Fund, has been predicting for a year that the Fed will lower rates in 2007.
``Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement after meeting in Washington. The central bank will ``act as needed to foster price stability and sustainable economic growth.''
Slowing Economy
Pimco now expects the U.S. economy to slow even more in the next 12 months than earlier this year, according to Paul McCulley, a managing director at the firm. U.S. gross domestic product will grow 1.25 percent to 1.75 percent in the next 12 months, compared with a forecast in March that the economy would grow 2 percent to 2.5 percent, McCulley wrote in comments posted on the firm's Web site ( Sept 20 )
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