...that's not what the Fed watchers at Merrill Lynch expect. They, in fact, raise the possibility of a major market disappointment in view of the Street's widespread expectation of a rate reduction this month.
Why so?
Given the lack of urgency to initiate a rate reduction, as exemplified in a Fed press release that followed the Dec. 19 FOMC meeting, Merrill's economics team feels the Fed could bide its time till the March 20 FOMC meeting before reducing rates.
This revelation comes from David Rosenberg, Merrill's chief Canadian economist and strategist, who says the Fed, judging from what the firm's U.S. Fed watchers think, "could well remain stingy with liquidity for another three months."
Sources, however, are dubious. They suggest if this were to happen-that if January went by and there was no Fed rate cut-the stock market could get beaten up pretty badly. What's more, it's felt, Fed inaction could lay the groundwork for a nasty recession.
"No rate cut and you're easily talking about a 9000 Dow," says one money manager at Neuberger & Berman. (The Dow is currently trading at 10707.15).
Although Rosenberg raises the possibility that the Fed could forego a lowering of rates longer than most of us expect, he nonetheless feels easing is clearly justified sooner than later. His chief reasons:
--The wealth effect has been obliterated. For example, the decline in the broad-based Wilshire Index has wiped out nearly $2 trillion in paper wealth, in turn cooling U.S. consumer spending to its most sluggish performance in nearly three years.
--Oil prices have dropped sharply, alleviating possible concerns over inflation expectations.
Why so?
Given the lack of urgency to initiate a rate reduction, as exemplified in a Fed press release that followed the Dec. 19 FOMC meeting, Merrill's economics team feels the Fed could bide its time till the March 20 FOMC meeting before reducing rates.
This revelation comes from David Rosenberg, Merrill's chief Canadian economist and strategist, who says the Fed, judging from what the firm's U.S. Fed watchers think, "could well remain stingy with liquidity for another three months."
Sources, however, are dubious. They suggest if this were to happen-that if January went by and there was no Fed rate cut-the stock market could get beaten up pretty badly. What's more, it's felt, Fed inaction could lay the groundwork for a nasty recession.
"No rate cut and you're easily talking about a 9000 Dow," says one money manager at Neuberger & Berman. (The Dow is currently trading at 10707.15).
Although Rosenberg raises the possibility that the Fed could forego a lowering of rates longer than most of us expect, he nonetheless feels easing is clearly justified sooner than later. His chief reasons:
--The wealth effect has been obliterated. For example, the decline in the broad-based Wilshire Index has wiped out nearly $2 trillion in paper wealth, in turn cooling U.S. consumer spending to its most sluggish performance in nearly three years.
--Oil prices have dropped sharply, alleviating possible concerns over inflation expectations.
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