Economists Say They Expect the Fed to Cut Rates At Least a Quarter

Yesterday the Fed stated that they expect slower (artificial) economic growth for next year, of around 1.8-2.5 percent. What a bold statement to make, such as increased inflation would be. Economist Brian Bethune says that he believes because the Fed's growth outlook is actually a bit high, predicted rate cuts are a probability by early next year, and could be more than just another 0.25% cut. This is no new news, but is notable because the dollar is falling to all-time lows against other major currencies even this week, and rich celebrities and big oil states in the Middle East, including Saudi Arabia, are all dumping or thinking about dumping the U.S. Dollar, setting off a tidal wave of selling and diversifying; all happening to bail out the crooked corporate banks and irresponsible American consumers.

Bethune said despite the Fed's noncommital position, he expects the central bank to lower borrowing costs further after two reductions that brought the federal funds rate to 4.5 percent.

"The downside risks to the outlook far outweigh the upside risks," he said.

"Thus the Fed's central tendency forecast does look a little rich to us at the current conjuncture, and for that reason we are forecasting that the Fed will reduce the federal funds rate by at least an additional 25 basis points by early 2008."

Financial markets are largely pricing in a rate cut and many analysts see a reduction at the next Fed meeting in December.

"The next FOMC decision will depend on ongoing economic data. However, the minutes published today comfort us in our expectations" for a cut, said economist Marie-Pierre Ripert at Ixis Corporate and Investment Bank.

"We still believe that bad news on the macro side as well as on banks will trigger further easing in monetary policy. A 25 basis-point cut on December 11 remains the most likely scenario even though it could be a close call."

The Fed report projected core inflation expectation for 2008 to 1.70 to 1.90 percent, down from 1.75 to 2.00 percent.

Fed Still Looking to Another Rate Cut After Comments from China

It is hard to really gather what is really going on in the minds of the U.S. Treasury and Federal Reserve. They keep right on printing more and more fiat money they stopped keeping records of, and the dollar is facing an all-time high sell-off, failing against about every other currency in the world. Now the chances of ANOTHER rate cut in December are said to be increasing.

China's Cheng Siwei said that their country will soon start diversifying and favoring the stronger currencies, which means, as they've openly discussed before, releasing some or a great deal of their greenback reserves amid the recent successes of Asian currencies. Henry Paulson, U.S. Treasury Security, shrugged the statement off as usual, saying that none of the Chinese officials he talks to have mentioned it. Of course not! Is that supposed to mean that it can't happen, or that there is no cause for alarm? That is absolute bologna. They want to keep bailing out the banks and big corporations, which want to screw common citizens at every turn. It is as simple as that. They clearly have no fears of causing a collapse of the dollar, and the government wants it to happen; so like they say about China's warnings, take everything with a grain of salt. Everybody wants to dump the dollar right now to not be the last one holding, but no one exactly wants the down turn that that will cause, and that is what the careless treasury and central bank are counting on.

Reuters

U.S. short-term interest rate futures rallied on Thursday, boosting the implied chances of a Federal Reserve rate cut in December as dealers dissected testimony from Fed Chairman Ben Bernanke.

Futures show as much as an 82 percent implied chance that the Fed will trim benchmark rates by another one-quarter percentage point in December, up from 70 percent late on Wednesday.

In testimony prepared for the congressional Joint Economic Committee, Bernanke said that the U.S. economy faces risks on both the growth and inflation fronts.

AFP

"This is the clarion call for all currency reserve managers around the world that the largest holder of US dollars outside the country is seriously thinking of selling them for other currencies," said Andrew Busch at BMO Capital Markets.

Busch, pointing to the tight global credit, said "the only central bank acting to soften the credit blow is the US Federal Reserve as this country remains the epicenter for the problem. Thus, the US dollar comes under pressure and subject to a potential exogenous shock ... like a shift in reserve management."

Market expectations are rising for a further rate cut when the Fed meets on December 11 because of an expected sharp economic slowdown due to a deepening housing slump and a subsequent crisis in the high-risk subprime mortgage sector.

"The market is still quite concerned about the fallout from the subprime mortgage crisis, so a lot of people are anticipating further rate cuts by the Fed," said Daniel Chan, senior investment strategist at DBS Bank.