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June 04, 2007
Hard to see a rate cut anytime soon
Reuters headline: Wall St. backs off calls for Fed rate cuts
NEW YORK (Reuters) - Renewed signs of strength in the U.S. economy have forced a number of Wall Street firms to back away from forecasts for interest rate cuts this year.
Merrill Lynch's shift was the most drastic. It went from predicting the Federal Reserve would lower rates by a full percentage point to not seeing any reductions at all.
"The Fed is not going to be cutting rates at any time this year," said David Rosenberg, chief economist for North America at Merrill Lynch.
Back on December 7, I wrote:
The part of me that wants to give a prediction that is right is turning to the view that there will be at least one rate cut in 2007.
The Cassandra in me is having a tough time with that.
A couple months later, I looked back on that call:
Thank goodness for my inner Cassandra for keeping me from jumping all the way on that bandwagon.
In recent weeks it seemed that the pendulum was swinging back in favor of looking for a rate cut, but I'm still not on that bandwagon. Not yet anyway. Listen to Cassandra.
Of course the lackluster first quarter GDP is one factor keeping me from going all out and predicting an increase in the fed funds rate right now. However, there are reasons for guarded optimism. There are also good reasons to be cautious.
When it is time for them to move, in either direction, it will probably come without much warning.
Posted by William Polley at June 4, 2007 04:05 PM
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