Citi Economists: Interest Rate Cuts Ahead… Lots of Them
Economists at Citigroup, which itself has been buffeted by the subprime tornado, expect
consumer prices
# the U.S. Federal Reserve to cut its key short-term rate, now at 2.25%, to 1% by mid-2008.
# the European Central Bank – which has been holding its key rate steady at 4% — to beginning cutting rates before the end of the second quarter and bring them to 3% by early 2009.
# the Bank of England, where the key rate is 5.25%, to cut rates to 3.75% by mid 2009.
# the Bank of Japan, which has been itching to raise rates from the current 0.5%, to leave them unchanged through 2009.
# the Swiss National Bank, where rates at now t 2.75%, to cut 2.5% at year end and then again to 2.25% in 2009.
# and the exception, the Royal Bank of Australia, which has been raising rates lately to fight inflation in the commodity-rich economy, to boost its key rate from 7.25% to 7.5% later this year.
“We are marking down our forecast for economic growth…in many industrial countries,” the bank’s economists said in their latest “Global Economic Outlook and Strategy:”
“The U.S. recession is likely to be deeper than previously expected, with growth staying below trend until late 2009. European growth is likely to slow below trend this year, with little or no recovery in 2009 unless financial conditions improve sharply. Emerging markets growth remains likely to outperform industrial countries by a side margin in 2008 and 2009. This will cushion the industrial country slowdown, but also reduces the extent to which the slowdown will yield the usual disinflationary windfall of large commodity price declines,” the economists said. –David Wessel |
