Monday, November 24, 2008
Talk about zero interest rate policy: MacroAdvisers - a venerable forecasting firm - is calling a Fed cut of 100 bps by January to make the federal funds target 0% throughout 2009. I'll believe it when I see it and comment then. From Real Time Economics:Former Federal Reserve Governor Laurence Meyer and former Fed economist Brian Sack on Monday became the latest central bank watchers to forecast a zero federal funds rate early next year.
In a research note Meyer and Sack, now with Macroeconomic Advisers, said once the federal funds rate reaches zero in January the Fed will “immediately implement non-conventional polices” including “targeted purchases of private assets in markets in which the flow of credit is shut off or severely impaired."
The target fed funds rate for interbank lending currently sits at 1%, matching the 2003-2004 low. Officials are widely expected to lower the funds rate another 0.50 percentage point when they meet next month.
Meyer and Sack had previously expected officials to stop there with the fed funds rate at 0.5%. But now they expect another half-percentage-point cut in January, joining Fed watchers at J.P. Morgan and HSBC in forecasting a zero Fed funds target.
Meyer and Sack expect the Fed funds rate to stay at zero “at least through the end of 2009.” They also expect a “significant” fiscal stimulus to be passed.
“These actions will not be able to prevent a difficult economic outcome in coming quarters, but they can play an important role in helping to support a recovery thereafter,” they wrote. – Brian BlackstoneRebecca Wilder