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Noviembre 01, 2007 The unwanted Fed cut
The Fed cut rates yesterday by 25 basis points as markets has correctly priced. The statement from the Fed is clear with a few important messages. According to the statement: a) This cut together with the previous one in September were designed to “help forestall some of the adverse effects on the broader economy” from the credit crunch. Summarizing, the Fed believes the combined cuts of September and October will help easing credit conditions. But more importantly they need to watch carefully inflation increases, specially taking into account recent movements in oil. The statement sends a message to markets that this is the end of a brief easing cycle that was initiated just to grease the wheels of credit markets. However yesterday´s decision has not been taken unanimously. Hoening , President of the Federal Reserve of Kansas City voted against the cut. This is the first time over the current year that the rates decision has not been unanimously taken. This is just a reflection of two differing views on how to deal with current conditions: on the one hand those that think that the credit squeeze will/should need a harder push from the Fed and on the other hand those who think that the Fed is permitting a built up in future inflation.
Yesterday's statement is attached below. Posted on 1 Noviembre 2007 in Financial Markets Trackback PingsTrackBack URL for this entry: CommentsPost a comment |
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