USA: Economists predict the U.S. Federal Reserve will slash its benchmark rates for first time since mid-2003
- 00:00:09
- ITN Source
USA: Economists predict the U.S. Federal Reserve will slash its benchmark rates for first time since mid-2003
Wall Street widely expects the U.S. Federal Reserve to cut short-term interest rates on Tuesday (September 18), which would be its first policy move since June 2006, when it raised rates to cap a two-year rate hike campaign. In its most closely watched meeting this year, the Fed is expected to cut the benchmark federal funds rate, now at 5.25 percent, by at least 25 basis points. "I think what we're going to see is 25 basis points plus a 50 basis point cut in discount rates, so the Fed funds rates will go down with an implicit promise that the Fed is ready to move again on October 31st," said Diane Swonk, Chief Economist at Mesirow Financial. The slash in borrowing rates that the Fed charges to member banks is expected to reinvigorate corporate borrowing and lending. This in turn could spur expansion, hiring and other corporate spending, providing a much-needed boost to the U.S. economy. Analysts are saying this could be a tenure-defining moment for Bernanke. He has to consider a slowing U.S. economy against the backdrop of rising inflationary pressures. If he cuts rates too deep he could light a fire under inflation, but if he moves slowly he could usher the first American recession in about six years. The fear about recession is growing amidst signs that the housing slump is deepening, the labor market is slowing and consumers are tightening their purse strings. Swonk said that the Fed's inflation worries will have to take a back seat though. As for the housing market, Swonk pointed out that the real impact of the rate cuts on the housing market will not be clear immediately and would depend on how things go for the larger credit market.
ITN Source | September 18, 2007
