Markets Soar After Fed Comments Rekindle Rate-Cut Hopes

U.S. equity markets were up strongly Wednesday after Fed Vice Chairman Donald L. Kohn rekindled investor hopes for interest rate cuts, sending the Dow Jones Industrial Average soared 335 points (2.59%) to close at 13,293.

Kohn said some of the economy's improvement has unraveled over the past few weeks amid renewed economic turbulence. He reiterated the need for "nimble" Fed policy in order to address economic risks. "The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October," Kohn told the Council on Foreign Relations.

"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said. The statement comes in contrast to those of other Fed officials, who over recent weeks have signalled they are generally satisfied with present interest-rate levels in view of the present economic outlook.

"Now you have Kohn pointing out the Fed can take action to offset what is happening in the financial markets; it does suggest the Fed is being responsive and is not just focused on inflation," said LPL Financial strategist Jeffrey Kleintop.

Kohn blamed the upheaval largely on housing and mortgage market woes. "Expectations of ever-rising house prices along with increasingly lax lending standards, especially on subprime mortgages, created an unsustainable dynamic, which is now reversing." What the Fed is watching closely, he said, is, "What is happening to credit for other uses, and how much restraint are financial market developments likely to exert on demands outside the housing sector?" Namely, are concerns over mortgage-related losses "constricting the flow of credit to a broad range of borrowers?"

The vice chairman said that while reducing interest rates in the face of risk-induced crises may reduce the penalty incurred by those who exercised poor judgement, "we should not hold the economy hostage to teach a small segment of the population a lesson."

He concluded: "Uncertainties about the economic outlook are unusually high right now. In my view, these uncertainties require flexible and pragmatic policymaking... we will act as needed to foster both price stability and full employment," (full speech).

Sources: MarketWatch

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Comments

[Lisa:]

I wonder whether this was just an "oversold", relief rally. A suggestion from the Fed that the economy really is lousy, and that rates might therefore be cut, doesn't seem like a cause for celebration. I wouldn't be surprised if the market is down again tomorrow.

2007 Nov 29 02:07 AM

[gordon:]

CNBC, without a "Fairness Doctrine" was able, with the Paulson-controlled Fed, to schedule Kohn (then later,Fischer)AHEAD "OF the DURABLES GOODS RELEASE. He knew the number, he also knew the subsequent existing housing number. PURE MANIPULATION OF MARKETS. In fact, it should be criminal. Earnings will be dismal. $750 BILLION was extracted from home owner's equity which will NOT be replaced by exports or dismal wage (NOT "INCOMES", AS CNBC likes to say!) growth, so... PUMP THE MARKET WITH RATE-CUT RUMORS. This is the last gasp/con-job during end of year window-dressing, of desperation, when rate cuts no longer help anyone but investment banks, controlled by the most aggregious Treasury Sec./hedgefund conflict of interest in history. Here's the most deceiving claim by CNBC to date, when claiming investment income will, (with Paulson's help), replace the losses in home equity: "The average American has $34,000 in mutual funds" "(Erin Burnett/CNBC, repeating a report) OK... How about THE MEAN? That number includes Bill Gate's pension!

2007 Nov 29 04:29 PM

[Jordan Fogal:]

Consumers cringe as holidays approach after housing debacle
Some just wish they had a home for Christmas
The “Lemon Lady,” Houston grandmother Jordan Fogal, testifies colorfully against Texas homebuilder mandatory binding arbitration provisions to a congressional subcommittee in Washington:

The first night in our new home, my husband decided to try out his new Jacuzzi tub on the third floor. When he pulled the plug, one hundred gallons of water crashed through our dining room ceiling. . . .

Well, this was not one overlooked plumbing connection, as my husband so desperately wanted to believe. It was a preview of coming attractions. Rainwater, from outside, sprayed us at the kitchen table. – The windows were installed upside down (our builder finally admitted this after three years). Our floors buckled and black spider-webs of mold crawled up our walls; the smell grew worse; then shower wall fell out and little puffballs grew out of the carpet. All the while, we had begged our builder to please fix our house.

We had the mold tested by an accredited laboratory, and they said they had never seen toxic readings that high in an inhabited dwelling.

The story of Fogal’s Hyde Park Crescent home was detailed in Mother Jones magazine two years ago; she also plays a part in this Houston Press report about the lucky owner of another Tremont Homes/Jorge Casimiro opus.

Written Testimony Submitted by Jordan Fogal To The Subcommittee on Commercial and Administrative Law: “Mandatory Binding Arbitration Agreements: Are They Fair For Consumers?” [U.S. House Committee on the Judiciary, ]
Home Sour Home [Mother Jones]
Ownership Wrongs [Houston Press]

2007 Nov 30 12:39 AM