Liz Rappaport
The yield on the three-month Treasury bill Monday was down another 100 basis points to 3.07% while commercial paper operations are "under severe duress," writes Deutsche Bank chief economist Joe Lavorgna.
While the Fed believes this is a liquidity problem based on fear of systemic financial dislocations, the central bank is likely to wait to cut the fed funds rate, Lavorgna predicts. He suggests the Fed would slice the rate at the discount window further. Many analysts threw out the possibility that the next intermediate step would be another 50 basis points to 5.25%. One problem is that the Fed, like the rest of the markets. is looking at old data -- old given the rapid deterioration of this credit crisis. Every July data point seems almost irrelevant to the Fed's forecast for growth. CNBC reports that Fed Chairman Ben Bernanke has been initiating conversations with market participants to get the most up-to-date information. Certainly, if layoffs come as fast and furiously as they did Monday, the Fed will have to rely on sources of information other that last month's news. As Lavogna notes, the markets will be eager to hear from Senate Banking Committee Chairman Christopher Dodd, who will hold a news conference after a private meeting Tuesday morning with Bernanke.
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