The Fed’s discount rate cut this morning was a meaningless gesture. The discount rate was at one time the means by which the Fed set policy, but those days are long gone. Today it is little more than an emergency funding mechanism for banks that due to weakened condition, do not have access to the Fed Funds market, which, by the way, traded at 5% last night.
So the discount rate “cut” keeps the discount window .75% above the current market. Big freaking deal, huh? At this morning’s repo auction the Fed did another drain, this time in the amount of $6 billion as they allowed $12 billion to expire, while adding only $6 billion in weekend repos. The stop out rate was 5.35%. Does that sound like a rate cut to you? Because they removed last Friday’s big pump job on Monday, the 5 day net dropped to a drain of $32 billion. Does that sound like liquefaction to you? It sure doesn’t to me.
Even over the last four days, when the stock market was melting down and the credit markets were in crisis, the Fed only added a net of $4 billion. There’s just nothing to see here. At least not yet. All in all, the Fed’s action this morning seems like a mean, stupid, and futile gesture, worthy of Animal House for its humor and theatrical impact. And aside from the Fed’s draining in the face of catastrophe, there was even more bad news from the Foreign Central Banks (details later in the report).
Click here to download complete report in pdf format (Professional Edition Subscribers).Try the Professional Edition risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.
Wanted to note that they also drained their permanent SOMA yesterday as well. Actions speaking louder than words?
Taking a break from CapitalStool for awhile….