US Interest Rate Predictions

During my visit keynoting the fine folks at SVB Financial last week, I was reminded – just 45 minutes or so before the talk – that their work keys off interest rates, and they would be very interested in my call on where rates were headed, when, and how much.

I quickly adjourned back to the room, spent some time looking at things, and came back with a rather detailed set of federal funds and discount rate predictions, starting last Tuesday and continuing through the rate bottom.

As readers know, all of the business press has been predicting a large move by the Fed this week, half a point or more, including the WSJ.

I suggested to the group last week that the Fed would move only .25% down this week, which they have now announced. There must be somebody else out there, but I am the only person I’m aware of who suggested they would do so little.

Why did I make that bet? They’re running out of room, while the crisis has a way to go. They don’t dare spend all their powder on one big rate shot. Rather, Bernanke is looking for other ways (including his $200B fund of last week) to avoid deeper problems.

I told the group, in response to a question asked at the end, that, although not technically in a recession, the US was in fact in recession, and had been for awhile.

For the rest of my rate predictions, going down and coming back up, read this coming week’s issue of the SNS Letter.

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