Signup for our free newsletter:

The Fed is Running Out of Ammo

Written By Brian Hicks

Posted January 31, 2008




300 basis points. That’s all that is left in the Federal Reserve’s gun. And that’s assuming they would follow Japan’s road all of the way down to zero.

That’s not much considering that the battle has really only just begun. And with 125 bps spent in the last 10 days alone, it won’t be long before there really is nothing left to cut.

Meanwhile, the data continues to strongly confirm that the economy is lurching towards a recession as the housing bubble drags everything into the pit with it.

From AP by Martin Crutsinger entitled: Consumer Spending Slowed in December

“Consumers increased their spending at the weakest pace in six months while applications for unemployment benefits soared last week, two more signs the economy is weakening.

The Commerce Department reported Thursday that consumer spending edged up just 0.2 percent in December — the year’s peak shopping season — down sharply from a 1 percent gain in November. It was the weakest performance in this area since a similar 0.2 percent rise in June of last year.

Meanwhile, the Labor Department reported that the number of laid off workers filing applications for unemployment benefits soared by 69,000 to 375,000. That was the highest level for jobless claims since the week of Oct. 8, 2005, when the economy was dealing with the disruptions caused by Hurricane Katrina and the other Gulf Coast hurricanes.

The increase in jobless claims was more than triple what economists had been expecting although part of the increase was blamed on technical difficulties in adjusting the figures around the Martin Luther King Jr. holiday.

But private economists said they believed the figure was accurately pointing to a weakening in the job market that reflects the significant slowdown in the overall economy. Ian Shepherdson, chief U.S. analyst at High Frequency Economics, said he believed the underlying level of jobless claims currently is around 350,000, an indication of a deteriorating labor market.

The unemployment rate rose significantly in December, going up to 5 percent from 4.7 percent in November. That was the biggest one-month increase since the period immediately following the September 2001 terrorist attacks. The January unemployment figure will be reported on Friday.”

Tomorrow’s jobs number will be huge. ADP aside, here’s a guess that it comes up short.

Damn the torpedoes full speed ahead.