Monday, October 01, 2007

Keep Cutting

Below are some excerpts from and excellent article by James C. Coooper from the October 1 issue of Businessweek. He makes a strong case (and I concur) that the Fed definitely has further to go on rate cuts......

Rate Cuts: The Fed May Just Be Warming Up
The half-point reduction isn't enough to erase the risk of recession Score one for the Fed.

Facing both deteriorating financial conditions and new risks to economic growth, the Federal Reserve stepped up to the plate on Sept. 18 and hit more than just a solid single. This one went for extra bases. The Fed's half-point cut in its target interest rate, to 4.75%, was well beyond the quarter-point reduction most Wall Streeters were expecting. And the policymakers left the door cracked for further trimming "as needed." The question now: Will more be necessary?

Probably. The big cut lessens, but does not eliminate, the chance the Fed will cut again at its Oct. 30-31 meeting. The Fed sounded as uncertain about how the recent credit turmoil will play out as anyone, so much so that it avoided offering its usual assessment of whether economic growth or inflation was its primary concern.Nevertheless, as long as uncertainty and fear continue to prevent the proper functioning of the credit markets, economies in the U.S. and abroad will be at risk. The Fed's action will go a long way toward restoring confidence in businesses' access to the funding they need to operate, but even a half-point decrease won't quickly thaw out frozen markets or reverse the downdraft already hitting economic activity........

Full Story Article Link Here

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