With credit panic subsiding, more experts appeared to reinforce the view that the added liquidity from central banks was enough to prevent a credit meltdown, making a Fed rate cut unnecessary for now.
"I think a lot of people are expecting a September rate cut already, at least if you look at Fed Funds futures," says Sam Stovall, chief investment strategist at Standard & Poors. But "I am not as certain as the fed funds futures that the Fed will do this. They’ve been able to respond with liquidity to stabilize the market."
Northern Trust chief economist, Paul Kasriel is wary of talk about a pre-September rate cut saying, "the Fed would not do this unless the situation got extremely dire and market troubles were having a profound negative impact on the economy."
"The Fed will try to keep the Fed Funds rate at 5.25% through aggressive open market operations," says Kasriel, who adds that "they could make life easier if they cut the discount rate to 5.5%. Banks could borrow at their will whatever they need which would surpress the Fed Funds rate."
The discount rate, currently 6.25%, is what the Fed charges banks for short-term loans. The Fed rarely adjusts only the Discount Rate when setting monetary policy.
Kasriel is in the camp of believing the Fed will eventually begin to cut rates to prevent a recession rather than bailing out the financial markets. He thinks "the Fed will wait until the end of October to begin cutting rates."
U.S. economists at Goldman Sachs hold similar views. In a weekly note to clients the economists say, "The Fed would prefer to resolve the current crisis through an increased supply of credit at the current funds rate target rather than a reduction in this target. This is because the current problem is one of availability of funds rather than cost."