Why is everyone so convinced the Fed will cut rates? With 1-Month Libor over 2% greater than the FF rate, is it even worth it to the Fed? Wouldn’t it just waste bullets?
If you wanted to bet on a rate increase, you could get rich if you were right. The futures market says 0 probability. It’s about 1/3 to keep unchanged, 1/3 down 25, 1/6 down 50, 1/6 down 75. It seems unlikely to me that they wouldn’t cut because they have been hellbent on adding liquidity in however they can. It’s the wrong move, but they are going to do it.
I’m starting to get the feeling that Central Banks and Government can only do so much. The market forces seem more powerful, at least in the long term. So yes, we might get a bounce here for a month or two, but in the long term, the market will win. Even with manipulation, the market wins (as people are less apt to invest in a manipulated market). Viva economics! My question: If the next time bomb is corporate defaults and the CDS market explosion, what kind of carnage can we expect from that?