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The odds for a rate cut by the Fed rise on financial crunch
Tue, Sep 16 2008, 10:26 GMT
http://www.fxstreet.com
FXstreet.com (Barcelona) – The Fed will publish its monetary policy decision today on the aftermath of the latest episode of the U.S. financial crisis, which has increased dramatically the chances of a rate cut later this afternoon.
The whole landscape has shifted in the last two days. While last Friday most economists would advance the end of the rate-cut policy, the latest news of the Lehman Brothers’ bankruptcy has definitely outbalanced the risks of economic growth to the downside outweighing widely upside risks to economy coming from higher inflation, even further if we take in account that oil prices seem to be returning to more moderate levels, as oil fell to prices below $100 for the first time since April.
Wall Street went yesterday through its worst session since the September 11 terrorist attacks; with the Dow Jones Industrial average dropping 504 points in one day.
The Federal Reserve announced on Sunday its decision to put more cash in the financial system as a preventive measure to help financial firms which could suffer the consequences of the Lehman Brothers’ Bankruptcy, although some experts have expressed their doubts about that decision to be enough to calm markets.
On the other side, unemployment, which grew in August o its higher level of the last five years, will add reasons to the Fed to ease interest rates further.
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