Wayne Angell Predicts 50 bps Cut — So You Know What the Fed Isn’t Going To Do!
It
was just over a year ago that the Fed finally, mercifully, stopped hiking rates.
The reason behind the hikes and at least partially behind the subsequent cuts
was inflation. As the stock prices (
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businesses have any pricing power, thus the inflation genie remains corked up in
its bottle. Without inflation to worry the Fed, the catalyst became and remains
US economic growth, which unlike Shaquille
O’Neal, has been steadily shrinking.Â
  Â
The economy not only has slowed from a 5.6% rate of growth as recently as the
second quarter of 2000, but is presently mired at zero and many of us are
grateful it’s holding at even that level. From early last fall, through the first
quarter of ’01 has been the weakest six months in over 10 years.Â
  Â
It’s not just the stock market that remains mixed
partway through our trading session today; the bond traders tell me they are
equally confused as to what the Fed will do at its two-day meeting that kicks off
tomorrow. The July Fed funds futures are steady at about the 3.65% level, clearly indicating the much-ballyhooed 50 basis point cut is a pipe dream. In
fact, the fund funds futures suggest a 25 basis point cut is about as much as
the markets can hope for.
Nonetheless, the absolute fade of fades, former Fed governor Wayne Angell, said
he sees a 50 bps cut to 3.5%. We all know that Mr. Angell has been colder than
ice when it comes to predicting Fed moves, and for that reason alone, I believe
the 25 bps cut has already been decided. Look for traders to immediately begin
to focus on the August 21st FOMC meeting, as the Fed has July off for
good behavior.Â
 Fed
Funds Rates since 1999
| 12/21/1999
|
5.5 |
2/2/2000
|
5.75 |
3/21/2000
|
6 |
5/16/2000
|
6.5 |
1/3/2001
|
6 |
1/31/2001
|
5.5 |
3/20/2001
|
5 |
4/18/2001
|
4.5 |
5/15/2001
|
4
|