US Fed: Bernanke Responds To Market Cries With An Emergency 75bp Rate Cut
January 22, 2008
source:http://www.dailyfx.com/story/topheadline/US_Fed__Will_Bernanke_Wait1201009517295.html
US Fed: Bernanke Responds To Market Cries With An Emergency 75bp Rate Cut
Tuesday, 22 January 2008 12:05:56 GMT
Written by Terri Belkas, Currency Analyst
The rumors in Europe were true. The Federal Reserve enacted an emergency rate cut this morning to slash the fed funds rate by 75bp to 3.50 percent. The US Dollar was knocked lower on the news, but the question is, will it prevent the US stock markets from plummeting? Dow futures are down 3.06 percent, which is better than the -5.11 percent readings we saw overnight, but nevertheless, after Asian stocks fell the most in 17 years and European shares trade nervously, it looks to be a rocky day in the US markets. Furthermore, if fed fund futures continue to price in another 50bp cut next week, the greenback will likely continue to tumble.
Our Take on the Fed Cut (By Kathy Lien, Chief Strategist):
The Federal Reserves refuses to sit back and watch the Dow plunge another 300 to 500 points. Before the equity market open, the US central bank slashed interest rates by 75bp to 3.50 percent, helping Dow futures rebound from being down 500 points before the announcement to down 300 points at 8:35am ET. US Treasury Secretary Paulson also pledged to push forward a stimulus plan that would offer a swift, robust and temporary fix for an immediate impact on the economy. This one two punch is certainly a step in the right direction and puts the Fed from behind the curve to ahead of it.
With commodity prices falling, the time was right for the Fed to put a down payment on future monetary policy and let the markets know that they are serious about preventing further losses in the financial markets. This is the least they could have done to avert a recession and we still expect another 25 to 50bp on January 30th because 75bp is just not enough. It failed to push Dow futures back into positive territory - we may only get a dead cat bounce in stocks which necessitates further easing.
The Fed's primary concern was increasing downside risks to growth, a deepening of the housing contraction and softening labor markets. The announcement has driven the US dollar lower against every major currency with the exception of the Japanese Yen. Significant rebounds have been seen in all of the carry trades. Further easing equals further dollar weakness.
FOMC Policy Statement
"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth...broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets...Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks." – January 22, 2008
US Fed: Bernanke Responds To Market Cries With An Emergency 75bp Rate Cut
Tuesday, 22 January 2008 12:05:56 GMT
Written by Terri Belkas, Currency Analyst
The rumors in Europe were true. The Federal Reserve enacted an emergency rate cut this morning to slash the fed funds rate by 75bp to 3.50 percent. The US Dollar was knocked lower on the news, but the question is, will it prevent the US stock markets from plummeting? Dow futures are down 3.06 percent, which is better than the -5.11 percent readings we saw overnight, but nevertheless, after Asian stocks fell the most in 17 years and European shares trade nervously, it looks to be a rocky day in the US markets. Furthermore, if fed fund futures continue to price in another 50bp cut next week, the greenback will likely continue to tumble.
Our Take on the Fed Cut (By Kathy Lien, Chief Strategist):
The Federal Reserves refuses to sit back and watch the Dow plunge another 300 to 500 points. Before the equity market open, the US central bank slashed interest rates by 75bp to 3.50 percent, helping Dow futures rebound from being down 500 points before the announcement to down 300 points at 8:35am ET. US Treasury Secretary Paulson also pledged to push forward a stimulus plan that would offer a swift, robust and temporary fix for an immediate impact on the economy. This one two punch is certainly a step in the right direction and puts the Fed from behind the curve to ahead of it.
With commodity prices falling, the time was right for the Fed to put a down payment on future monetary policy and let the markets know that they are serious about preventing further losses in the financial markets. This is the least they could have done to avert a recession and we still expect another 25 to 50bp on January 30th because 75bp is just not enough. It failed to push Dow futures back into positive territory - we may only get a dead cat bounce in stocks which necessitates further easing.
The Fed's primary concern was increasing downside risks to growth, a deepening of the housing contraction and softening labor markets. The announcement has driven the US dollar lower against every major currency with the exception of the Japanese Yen. Significant rebounds have been seen in all of the carry trades. Further easing equals further dollar weakness.
FOMC Policy Statement
"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth...broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets...Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks." – January 22, 2008
Labels: Fundamentals, Markets
