Michelle Girard of RBC Greenwich Capital & Mike Holland of Holland and Company Review The Interest Rate Reduction
Tuesday, March 18, 2008
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SUSIE GHARIB: Joining us now with more analysis of the Fed's big rate cut today, Michelle Girard, senior economist at RBC Greenwich Capital Management and Mike Holland of Holland and Company. Hello to both of you.
MICHELLE GIRARD, SENIOR ECONOMIST, RBS GREENWICH CAPITAL MANAGEMENT: Good evening.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hello, Susie.
GHARIB: Michelle, let me begin with you. A lot of people have said that the Fed has been very aggressive and creative through this crisis. But still many people are asking, is this problem out of the reach of the Fed? Can the Federal Reserve realistically get us through this crisis?
GIRARD: I think that they can. I mean, I think that there is even more to do if financial market conditions don't stabilize. But the Fed is adding liquidity which in the end is sort of the life blood of the economy. They're offsetting the very tight financial market conditions with liquidity, making money very cheap to encourage banks and institutions to lend and so they're doing a very important part to offsetting the impact of all the turmoil on the broader economy.
GHARIB: Mike, how do you rate the job that the Federal Reserve is doing?
HOLLAND: From someone who has been on this show in the past quite critical when I thought they were doing the wrong thing, I would give them an A-plus, Susie. I think they have been spectacular over the last several months. We've been in a real financial crisis mode starting last July and August. And they have dusted off -- Darren Gersh's package was fascinating that thing we just heard a few minutes ago about what Bernanke was saying back in 2002. He's pulled tools out of that tool bag that no one suspected. He's done some really fabulous things. And today, what Paul Kangas was just talking about, the markets have responded incredibly positively per Michelle's comments.
GHARIB: Well let me ask you Michelle, referring to the story that Darren Gersh did and his analysis. Can the Fed keep cutting rates? How low can they go and still be effective?
GIRARD: I do think that we will see slower rate cuts going forward. In the statement they released today, the Fed really focused more on economic conditions as sort of giving the reason for the rate cut as opposed to financial market turmoil which really was the focus of the statements in January. So I think going forward they're going to address economic risk with further rate cuts, but they aren't necessarily going to be responding to financial market turbulence with the Fed fund cuts, so I wouldn't expect we'll see as large moves or intermediate moves going forward. When we get those problems in the financial markets, what we'll see is what we saw on Sunday where you'll see more creative ways to introduce liquidity into the financial markets away from cutting the Fed fund rate.
GHARIB: Let me ask both of you this because what I hear a lot is that the Federal Reserve is helping Wall Street and helping banks, but what is it doing -- is it doing enough for Main Street and troubled struggling homeowners? You know, the bottom line question is will I be able to sell my house? Will I be able to get a mortgage for the, you know, average American out there? What do you guys say to that?
HOLLAND: Go ahead, Michelle.
GIRARD: I'll jump in. Clearly they're helping because lowering interest rates lowers the cost of borrowing and that will at least make the whole housing affordability better. In the end we need to see the housing market stabilize and we're just going to have to work through the, you know, the very high level of supply, the high level of unsold homes have to be worked off. That's just going to take time. But the Fed is at least providing liquidity and helping to keep interest rates low and encouraging banks to make mortgage loans.
GHARIB: Mike, what do you say to that? Is the Fed really helping Main Street or only Wall Street?
HOLLAND: They're the same. Wall Street now is represented on Main Street because more than half of the viewers watching, much more than half, are stock owners. More than half of America owns stock. But more importantly Susie, to Michelle's comments, when you have as you've had since last July make it tougher and tougher to get mortgages that are reasonable, that hurts house prices. Congress has not been particularly helpful with the kind of regulations and stuff they've done with respect to the housing (INAUDIBLE) They're starting to look at this. But they're on vacation for two weeks right now. The Federal Reserve has been a little bit on its own. The Federal Reserve has been helping Wall Street but more importantly has been helping Main Street particularly by its most recent things in terms of unplugging the financial system so people out in Main Street can get work done and get business done.
GHARIB: Michelle, two dissenting votes by policy makers today. Is this a sign that maybe inside the Fed they feel that the Fed is cutting rates too much and too often?
GIRARD: Well, I think those two policy makers want to make sure we don't take the -- completely abandon the inflation aspect of their job. You know, the Fed has been cutting rate and not worrying about inflation even though some of the inflation news has not been as encouraging. And so I think that these two policy makers would like to see things slow down.
GHARIB: Mike, bottom line, last word. How long do you expect this down cycle to last?
HOLLAND: I think most of the pain is behind us. I think the duration goes maybe to the summer. But I think today was a very, very important day. Important not only was the stock market up as much as it was, Susie, but the dollar was up a lot. That was a very important clue to what the future may bring. We may have better surprises on the up side than the down side over the next several months.
GHARIB: I hope you're right about that. Thank you both so much for your insights. We really really appreciate it.
GIRARD: Thank you.
GHARIB: My guests tonight Michelle Girard, senior economist at RBC Greenwich Capital Management and Mike Holland of Holland and Company.
