Does the Fed know something we don't?
Simon Ward
Post a Comment
Has the Federal Reserve received new information, not yet in the public domain, that might justify Tuesday’s shock interest rate cut?
One of the stated reasons for the move was that “credit has tightened further for some businesses and households”. The Fed conducts a quarterly credit conditions survey of senior loan officers at banks, with the latest results due to be released in early February. Officials are likely to have been given an early view.
The chart below shows an indicator of corporate credit conditions derived from this survey that has warned of recessions historically. (It is an average of the percentage balances of loan officers reporting tighter standards on commercial and industrial loans to large / medium and small firms.) On the last reading, the indicator was rising but still significantly below the historical recession “trigger” level. Has it surged further in early 2008?
Even if it has, I still think the Fed acted unwisely by appearing to have been panicked by global equity market falls. Investors are now banking on further action at next week’s meeting, creating another dilemma for policy-makers.
View Printer Friendly Version
Email Article to Friend
Reader Comments