Tuesday, February 5, 2008

Fed Funds soon to be under 2%

Today, Jeffrey Lacker, of the Federal Reserve Bank of Virginia said that a "mild recession was possible" and that "further easing may be warranted." Merril Lynch said we're going to get another intermeeting rate cut, and the two year note now trades at 1.95%. Lacker was one of the Fed heads that originally dissented when the Fed was cutting rates, and four times last year he voted for higher rates.

Today he got religion. Look at his speech today:

"A particularly dramatic change is likely to occur in commercial construction, which is a key segment of business investment. Construction spending for new stores and offices grew by a healthy 10 percent after inflation last year, but we have heard reports from our District contacts of a significant softening of conditions lately, with major projects being deferred or cancelled outright. In addition, vacancy rates for retail space have increased over the last year, which should lead to less construction going forward."

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