Interesting how differently people speak about the chance of a 75 basis point ease on Tuesday. Here is a piece from the London Times which says the chance is "significant."
{Greenspan will slash rates to revive markets
David Smith, Economics Editor
AMERICA's Federal Reserve Board is set to cut interest rates by three-quarters of a percentage point to 4.75% this week, amid fears that the market crash will inflict further damage on an already weak American economy.
With a half-point cut already discounted and market participants describing the events of the past week as a "bloodbath", there are fears even a more aggressive easing by Alan Greenspan and the Federal Open Market Committee (FOMC) will not lift sentiment.
Mark Cliffe, an economist with ING Barings, said: "The Fed may read the stock market's weakness as threatening further economic weakness, because it reflects gathering gloom about corporate profits and could trigger a further loss of business and consumer confidence."
The Nasdaq composite index fell another 50 points to 1,891 on Friday, for a drop of 8% on the week. The Dow Jones industrial average, which shed another 208 points to 9,823, was also down 8% on the week. Traders described it as the worst week in more than a decade. The FTSE 100, down 163 points on Friday to 5,563, fell by 6%, but is set to open weaker tomorrow after Friday night's falls in New York.
"The risks facing the Fed have been in a continuous state of flux in recent days," said Peter Kretzmer, an economist with Bank of America in New York. "There is a significant chance of a 75 basis-point easing on Tuesday."
Although the closely watched University of Michigan consumer-confidence indicator showed a rise on Friday, analysts warned the survey had been taken before the latest downturn in the markets. Industrial production and producer-price figures were weak.
John Makin, an economist at the American Enterprise Institute in Washington, warned that an aggressive easing by the Fed, taking rates as low as 3%, was needed.
A big rate cut by the Fed this week could be followed by an early Bank of England move. Although recent data suggest Britain's economy is weathering the storm, and inflation figures this week are set to show February's underlying rate close to January's 1.8%, the monetary policy committee (MPC) has made clear it will respond to global weakness.
Inflation is set to head lower in the next three months, despite the decision by the Organisation of Petroleum Exporting Countries, meeting in Vienna yesterday, to cut output by 1m barrels a day, to keep oil prices at $25 a barrel.
A survey of analysts this weekend by Ideaglobal.com, a financial-research company, shows a 55% probability of a quarter-point rate cut at the MPC's April 4-5 meeting.} |
