So they drop rates in hope that Stocks soar....We shall se if they will, if Japan any example 40000 to 14,000 (lowest rates ever :)
US signals rates
to ease
By Alan Deans, New York
Hopes have strengthened that official US interest rates will fall, after the Federal Reserve chairman, Dr Alan Greenspan, played down the risk of inflation breaking out and warned that the American economy would feel the effects of spreading global financial turmoil.
Dr Greenspan said the Fed now had a balanced view about inflationary pressures. That could indicate that the rate-setting Federal Open Market Committee has already altered the bias towards lifting interest rates it had adopted earlier this year.
At a speech given at the University of California, Dr Greenspan said: "It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.
"Developments overseas have contributed to holding down prices and aggregate demand in the US in the face of strong domestic spending.
"As dislocations abroad mount, feeding back on our financial markets, restraint is likely to intensify."
Investors pushed market yields and the US dollar down last week on expectations that the plunge in Wall Street equity prices would force the Fed to lower rates.
Any move by the central bank would be welcomed internationally because it would encourage capital to leave the safe havens in the US to which it has recently fled and return to some battered economies starved of funds.
Dr Greenspan's remarks came after US stocks fell on Friday for the fourth time in five days as concern mounted that a global economic slowdown would cut into corporate profits. The Dow Jones Industrial Average rebounded from a 186-point loss to close down 41.97 points at 7640.25.
Speculation about a possible Fed rate cut has also contributed to a recent weakening of the $US. After reaching a high of 147.26 on August 11, the $US has lost almost 8 per cent, falling as low as 133 in trading on Friday.
Dr Greenspan said that the FOMC had previously been concerned that rising inflation was the primary threat to the continued expansion of the US economy.
"By the time of the committee's August meeting the risks had become balanced and the committee will need to consider carefully the potential ramifications of ongoing developments since that meeting."
The FOMC is not due to meet again until September 29 and the minutes from the August meeting will not be released until a few days later. Those minutes should confirm whether the Fed has indeed adopted a neutral or easing bias on interest rates.
Dr Greenspan's speech was his most pessimistic assessment yet.
Figures released on Friday by the Labor Department showing a rebound in US employment in August disguised a decline in factory jobs that analysts said may herald a slowdown in job growth.
The National Association of Purchasing Management's factory index signalled the manufacturing economy contracted for the third month in a row in August, as the recession in Asia hurt export orders.
Dr Greenspan's comments also came as top US economic officials pleaded with Japan to stimulate its economy, saying it held the key to defusing the global crisis.
Dr Greenspan joined a meeting in San Francisco on Friday night between US Treasury Secretary Mr Robert Rubin and the Japanese Finance Minister, Mr Kiichi Miyazawa, at which Japan offered no new pledges to revive its economy.
In his University of California speech, Dr Greenspan also cast doubts on the ability of companies to extract productivity gains because of a backlog of investments.
He said this would weaken expectations of securities analysts that profits would grow at 13 per cent annually during the next three to five years.
He also counselled caution in the wake of the large swings on Wall Street.
"We have learned in recent weeks that just as a bull stockmarket feels unending and secure as an economy and stockmarket move forward, so it can feel when markets contract that recovery is inconceivable," he said. "Both, of course, are wrong."
afr.com.au |
