2008: A Comeback Year For Wall Street? Probably Not.

Last year’s markets were not very kind to brokers and their firms, which both took major hits in the fourth quarter thanks to the credit fiasco. For those betting on 2008

Last year’s markets were not very kind to brokers and their firms, which both took major hits in the fourth quarter thanks to the credit fiasco. For those betting on 2008 to mark a comeback, the Federal Reserve has some gloomy news for you.

Members of the Federal Reserve’s Open Market Committee think 2008 could bring more of the same, according to minutes released today from a December 11th closed-door meeting. Fed officials cut inter-bank lending rates that day for a third time since September, dropping them a quarter point to 4.25 percent. (The committee cut rates by half a point in September and another quarter point in October.)

Minutes from the meeting show officials agree that the housing correction will likely be deeper and longer than they had anticipated in October, and that the committee expects it may have to continue cutting rates to shore up liquidity. “The decline in housing [has] steepened, and consumer outlays [appear] to be softening more than anticipated, perhaps indicating some spillover from the housing correction to other components of spending. These developments, together with renewed strains in financial markets, [suggest] that growth in late 2007 and during 2008 [is] likely to be somewhat more sluggish than participants had indicated in their October projections," the released minutes said. Some members feared that if problems grew worse, "a substantial further easing" of rates would be needed. Read a PDF of the minutes.

So will 2008 provide any relief from last year’s woes? It’s tough to say. But members of the committee projected that aided by an easing in the stance of monetary policy, economic growth will gradually recover, allowing the economy to expand at about its trend rate in 2009

In the meantime, a New York Times columnist says while brokers may not have faired so nicely in 2007—their clients did pretty well. He writes, “Two-thirds of a century ago, a best-seller asked, ‘Where are the customers’ yachts?’ It noted that somehow the brokers always made money, even when their customers suffered. And so it has been for most of the years since then. But not in 2007,”..... read more.

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