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To: ~digs who wrote (3291)	8/17/2007 10:23:27 AM
From: stockman_scott	Respond to of 7944

Goldman Says Fed to Cut Rates to 4.5 Percent in 2007 (Update1) By Deborah Finestone Aug. 17 (Bloomberg) -- Goldman Sachs Group Inc. said the Federal Reserve will cut the overnight target interest rate to 4.5 percent from 5.25 percent this year, citing ``sharp tightening in financial conditions'' and expectations the economy will slow. The Fed will reduce the rate by at least 0.25 point on or before policy makers meet on Sept. 18, economists led by Jan Hatzius and Ed McKelvey in New York forecast in a note today before the central bank reduced its discount rate. The Fed will cut another 50 basis points after that, possible at the next two meetings in October and December, McKelvey said in an interview. The Fed today cut the rate at which it makes direct loans to banks by 0.5 percentage point to 5.75 percent. It's the first reduction in borrowing costs between scheduled meetings of the Federal Open Market Committee since 2001 and Ben S. Bernanke's first as Fed chairman. The changes come as turmoil in credit markets sparked by losses on subprime mortgages spurred investors to flee riskier assets ranging from emerging-market debt to equities. Yields on two-year Treasury notes, traditionally a safe haven for investors, dipped below 4 percent to their lowest compared with the Fed's target since 2001. Earlier Forecast Investors demanded the highest risk premium since November 2005 to hold emerging-market sovereign bonds, according to JPMorgan's EMBI Plus index. In addition, global stocks have lost $4.2 trillion in the past month. That should keep consumer spending subdued, the firm said. ``We still expect the credit restraint and the housing downturn to push the unemployment rate up by an amount that has generally coincided with monetary easing in the past,'' according to the research note. Until June, Goldman had expected the Fed to cut rates 75 basis points this year. They changed the forecast in June saying the Fed would hold rates at 5.25 percent through year-end amid a resilient labor market and manufacturing strength. The firm is maintaining its forecast that gross domestic product will slow to a 2 percent annual rate in the fourth quarter and first quarter of 2008. To contact the reporter on this story: Deborah Finestone in New York at dfinestone@bloomberg.net . Last Updated: August 17, 2007 09:03 EDT