The surprisingly sharp decline in August jobs may have shocked the market, but does not guarantee a fed funds rate cut at the upcoming FOMC meeting on Sept. 18, and is unlikely to result in another between-meetings rate cut. "We want to be careful not to overweight one piece of information," Charles Plosser, president of the Federal Reserve Bank of Philadelphia said following a speech in Hawaii on Saturday. He said the district bank heads were trying to gauge the impact of the credit market turmoil and worsening housing situation, noting that there was "a lot of conflicting data out there that's going to be tricky to get through." He added that he hadn't made up his mind as to whether a rate cut was needed. That's not to say the Fed isn't looking to put funds into the system, having cut the discount rate by 50 basis points in a rare move between meetings on August 17. Plosser reiterated that the Fed "didn't care" why banks want to borrow the money. Plosser also said that the growing uncertainty about the economy could translate into some uncertainty over the Fed's inflation outlook. While he noted that there is "considerable uncertainty" concerning the country's economic expansion given the housing slump, he indicated that there was an "underlying stability," and that he expected growth to resume later in 2008 as the housing impact gradually eases. Interest-rate futures indicate a cut in the overnight rate by at least a quarter-point from 5.25% when the Fed meets on September 18.
Sources: Bloomberg, Wall Street Journal
Commentary: How Much Should The Fed Clean Up The Current Mess? • What's the Connection Between Non-Farm Payroll, a Recession and Gold? • Impact of The Rotten Jobs Number
Stocks/ETFs to watch: DIA, SPY, AGG
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