Tweet
Economists, investors are confident there's more easing in the pipeline
By Greg Robb, MarketWatch
Last update: 11:10 a.m. EST Jan. 22, 2008
WASHINGTON (MarketWatch) -- Tuesday's surprise interest-rate reduction by the Federal Open Market Committee doesn't mark the end of U.S. rate cuts by any means, Federal Reserve watchers say.
"Don't take today's move ... to mean that the FOMC is through," said Richard Moody, chief economist at Austin-based Mission Residential, in a note to clients. "We expect another funds rate cut at the scheduled January 29-30 meeting, with possibly more to come in the spring."
Investors seemed to agree. Wall Street showed broad losses in U.S. stocks, although key equity benchmarks had come well off their worse levels of the post-holiday session. See Market Snapshot.
Acting after a global market meltdown in financial markets Monday, the Fed lowered its overnight lending rate by three-quarters of a percentage point, to 3.50%, earlier Tuesday -- a rare move between formal meetings of the central bank's policymakers.
The FOMC also lowered its discount rate by 75 basis points, to 4%. See full story.
It was the largest cut in the federal funds rate since 1982, after the FOMC had driven rates up to 20% to kill off inflation.
Fed officials said the FOMC convened via videoconference Monday night to discuss the economic outlook and monetary policy.
Nigel Gault, chief U.S. economist at Global Insight, believes the central bank will eventually get rates as low as 2.5% before the current easing cycle draws to a close.
The Fed's likely to cut rates again by a quarter-point at their formal meeting next week, he said in a telephone interview.
The rate cut comes as the dangers of a recession are increasing. While the Fed cuts can't stop that, they are aimed at helping the economy recover in a time frame of approximately six months down the road, Gault said.
"The Fed has to think about but six months down the road. They have to think if they want the economy to be recovering rather than marred or moving sideways," he said.
"The evidence on the economy has deteriorated sharply, suggesting a recession is more likely than not, and if you're in risk-management mode this is the risk to worry about," Gault said.
"The Fed had not been particularly aggressive to date," he noted.
Fed funds futures now point to a 2% Federal funds rate by September, Fed watchers said.
"This is a recession call by the market," said Scott Anderson, senior economist by Wells Fargo Economics.
"Our current view is that the Fed will cut another 75 basis points by the end of April, bring the Fed funds target rate to 2.75%," Anderson said.
He said the Fed won't be keen to move below that level in order to keep some ammunition "for a rainy day."
Greg Robb is a senior reporter for MarketWatch in Washington.
http://www.marketwatch.com/news/stor...66CF0AB29DE%7D
By Greg Robb, MarketWatch
Last update: 11:10 a.m. EST Jan. 22, 2008
WASHINGTON (MarketWatch) -- Tuesday's surprise interest-rate reduction by the Federal Open Market Committee doesn't mark the end of U.S. rate cuts by any means, Federal Reserve watchers say.
"Don't take today's move ... to mean that the FOMC is through," said Richard Moody, chief economist at Austin-based Mission Residential, in a note to clients. "We expect another funds rate cut at the scheduled January 29-30 meeting, with possibly more to come in the spring."
Investors seemed to agree. Wall Street showed broad losses in U.S. stocks, although key equity benchmarks had come well off their worse levels of the post-holiday session. See Market Snapshot.
Acting after a global market meltdown in financial markets Monday, the Fed lowered its overnight lending rate by three-quarters of a percentage point, to 3.50%, earlier Tuesday -- a rare move between formal meetings of the central bank's policymakers.
The FOMC also lowered its discount rate by 75 basis points, to 4%. See full story.
It was the largest cut in the federal funds rate since 1982, after the FOMC had driven rates up to 20% to kill off inflation.
Fed officials said the FOMC convened via videoconference Monday night to discuss the economic outlook and monetary policy.
Nigel Gault, chief U.S. economist at Global Insight, believes the central bank will eventually get rates as low as 2.5% before the current easing cycle draws to a close.
The Fed's likely to cut rates again by a quarter-point at their formal meeting next week, he said in a telephone interview.
The rate cut comes as the dangers of a recession are increasing. While the Fed cuts can't stop that, they are aimed at helping the economy recover in a time frame of approximately six months down the road, Gault said.
"The Fed has to think about but six months down the road. They have to think if they want the economy to be recovering rather than marred or moving sideways," he said.
"The evidence on the economy has deteriorated sharply, suggesting a recession is more likely than not, and if you're in risk-management mode this is the risk to worry about," Gault said.
"The Fed had not been particularly aggressive to date," he noted.
Fed funds futures now point to a 2% Federal funds rate by September, Fed watchers said.
"This is a recession call by the market," said Scott Anderson, senior economist by Wells Fargo Economics.
"Our current view is that the Fed will cut another 75 basis points by the end of April, bring the Fed funds target rate to 2.75%," Anderson said.
He said the Fed won't be keen to move below that level in order to keep some ammunition "for a rainy day."
Greg Robb is a senior reporter for MarketWatch in Washington.
http://www.marketwatch.com/news/stor...66CF0AB29DE%7D
Comment