Will the Fed vote to loosen when it next meets on September 18? It seems almost a foregone conclusion on days when the stock market is getting pummeled, often because of depressing statistics from the housing sector. But what about days like yesterday, when shares were getting short-squeezed higher, strong retail sales were being reported for August, and gold was thrusting above $700 for the first time in months? On such days, Wall Street's addictive craving for more liquidity seems to recede into the background, along with rumors such as the one that has the Fed cajoling all of the major central banks to loosen along with us so as to avoid a run on the dollar. Our friend Larry Amernick, editor of The Amernick Letter [click here for a free sample], has argued for months that there is already plenty of liquidity in the system and that none of the central bank's economic benchmark call for more. In fact, he notes, a not insignificant amount of borrowable funds has been going unborrowed, as evidenced by a recent spike in banking system net free reserves. He further notes that the recent detumescence of this number implies that banks have broken the log-jam and are borrowing and lending more freely once more. Jobs Report Crucial 'There's not enough evidence to loosen,' he says, nor would doing so much affect the still-skittish commercial-paper market over the near term. Amernick is betting that if the employment numbers due out Friday are strong, it will all but kill the chances of a cut in the federal funds rate. One of our regular correspondents actually believes the Fed is about to tighten. 'The price of gold gapped up to 705 [yesterday], and now Bernanke is taking notice,' writes Erich Simon, a whose bird flu reports
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