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Citing a weakening economic environment the Federal Reserve cut interest rates 50 basis points in an attempt to soften the impending economic crash landing. In other news the dollar was seen shooting glares of jealousy at its friend the Euro.
From the Fed statement:
”Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” according to the central bank. “Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.”
Clearly the path chosen is one of an attempt to sustain the unsustainable. Lower borrowing costs do not fix the problem of solvency that is rampant in America. On the other hand grab the low rates while you can - while we may see further easing the Fed has removed some of the stronger language that points to guaranteed future rate cuts.
From the Market Watch article on the Fed rate cut:
Economists detected some effort by the Fed to cool expectations that the Fed would slash interest rates in coming months.
They noted that the Fed removed language saying that downside risks were “appreciable.” In addition, the Fed said that the rate cuts taken to date should promote “moderate growth over time.”
Shepherdson said he was not surprised the Fed would hint at slower easing.
“They were probably nervous expectations would run away,” and wanted to maintain some degree of flexibility, he said.
What do you think?
I would say the dollar is somewhere south of the equator and running scared for Antartica.
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