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October 30, 2007
November fed funds still looking for a cut
As of 9:30 (Chicago time) November fed funds were trading at 95.485 after starting the day at 95.495. Greg Ip's article may have spooked Wall Street, but at the corner of Jackson and LaSalle the expectation is, at this hour, still a 25 b.p. cut.
Click the image for the full size version. Source: Chicago Board of Trade (10 minute delayed quotes)
Electronic trading in fed funds continues overnight. You can see that when Ip's article hit the internet, the reaction was immediate but short-lived.
It should be an interesting 27 hours or so.
Posted by William Polley at October 30, 2007 9:41 AM
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Comments
For what it's worth, if the Fed keeps to the same policy they've adhered to in recent years, they will cut the rate by a quarter point. If they choose to go back to the tighter monetary policies of the 1990s, they'll hold tight.
Then again, you might like to use your own assumptions:
http://tinyurl.com/2ugk23
Posted by: Ironman at October 30, 2007 12:40 PM
Nice job putting together that calculator! If the unemployment rate goes up another tenth of a percent, it still makes sense to cut even if the "Mankiw factor" as you call it splits the difference at 1.5.
Just sayin'.
Posted by: William Polley at October 30, 2007 4:53 PM
Thank you much! I did look at using 1.5 for the "Mankiw Factor" (he's going to hate me for that someday), but I opted for 1.6 since it seemed to do better in matching prediction and outcome in more recent years.
A couple months ago, back when Mankiw's comments were still open, Kash Mansori noted that adding an additional factor to account for NAIRU would seem to do the trick without changing the other factors of equation, but it made more sense to me that the FOMC would want a "dial" to change the tightness or looseness of its monetary policy when setting the federal funds rate, without having to change any of the other basic data inputs.
And so, the "Mankiw Factor" was born!...
Posted by: Ironman at November 1, 2007 12:52 AM