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Recession talk may lead to an early rate cut
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I do not see a recession risk in American economy.Bernanke had already talked about calculated slowdown which we are having right now.I believe there is no need for rate cut for real economy.However the market has too much expectation.I think the right move will be a rate cut for 0.25 to stop the market turmoil. There is also wall street and corporate America pressure which is hard to ignore ,especially for Bernanke.
A surprising drop in payrolls in August may have opened the door to aggressive interest-rate cutting by the Federal Reserve just a day after central bank officials said the economy appeared healthy outside of weakness in the housing market.
Fed officials, who in speeches on Thursday stressed there was no conclusive evidence that problems in housing and credit markets had spilled over to the broader economy, may have gotten a wake-up call from a U.S. Labor Department report showing the economy shed a net 4,000 non-farm jobs in August.
It was the first decline in employment since August 2003.
RENEWED URGENCY
While central bank policy-makers earlier this week had played down the chances of quick interest rate cut and suggested any Fed response to market volatility would be deliberate and measured, the unexpectedly bleak employment report added a note of urgency to the mix.
Contributing to signs the economy may be cooling more quickly than officials had anticipated, revisions to the jobs data showed employers added 81,000 fewer jobs in July and June than previously reported.
U.S. short-term interest rate futures boosted the implied chances of a half-percentage point cut in the benchmark federal funds rate to 72 percent from 42 percent before the jobs report was published on Friday, and economists said a series of interest rate reductions might be in store. surprising drop in payrolls in August may have opened the door to aggressive interest-rate cutting by the Federal Reserve just a day after central bank officials said the economy appeared healthy outside of weakness in the housing market.
The Fed's rate-setting Federal Open Market Committee has held the federal funds rate target steady at 5.25 percent since June of last year.
The Fed's Beige Book, an anecdotal snapshot of economic conditions, released by the Fed on Wednesday had said that outside of the housing sector, recent credit market problems had not appeared to have hit the economy.
The jobs report, however, raised the troubling prospect that businesses may be putting off new hires just as tighter credit conditions and a prolonged housing slump start to weigh on consumer enthusiasm.
Many observers said Fed Chairman Ben Bernanke bought time to assess his options before any interest rate cuts with a speech last week in which he acknowledged the global recent liquidity and credit squeeze could threaten economic growth. The Fed would act as needed to prevent that from happening.
REMOVES MORAL HAZARD STIGMA
Bernanke also warned it was not the Fed's role to rescue investors who underestimated the risks of some assets and have lost money as a result, a point underscored by other Fed officials who spoke this week.
The U.S. jobs report though may provide the Fed with evidence the economy is on a shaky path and outweigh concerns a rate cut would give investors the impression the central bank will rescue them in times of stress, leading to undue risk taking, a dynamic referred to as "moral hazard."
I believe this reinforces (the Fed) acting because of downside economic risks, not because of bailing out Wall Street. This really takes away the stigma of any sort of moral hazard if the Fed eases in September.
In his speech a week ago, Bernanke acknowledged increased uncertainty about the economic outlook and said policy-makers would watch data carefully for warning signs.
The payrolls report suggests that evidence of economic weakness is now too severe to dismiss.
Any reluctance by Fed officials to ease in September, as expressed by a number of FOMC members ... has just melted away, and policy-makers will be much more open to the possible need for multiple eases based strictly on the economic environment. |
| Tarih
: 10.09.2007 |
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© 2006 Mert TOKER All Rights Reserved. |
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