Asia shrugs off US rate cut to extend losses. Fed cuts by half-point, hinting at more to come. After the Fed: Hopes of recovery, worries on prices. Mortgage rates could rise, not fall, after Fed move
By Daniel at 30 January, 2008, 11:20 pm
HONG KONG (MarketWatch) — Asian markets dropped sharply Thursday after the U.S. Federal Reserve cut a key interest rate as expected by half a percentage point, on concerns about the health of the U.S. financial markets. Financials paced losses in the region, led by Mizuho Financial Group in Tokyo and Macquarie Group in Sydney.
“Implications for credit investment
Given the investment environment in global markets, we believe that while there is no longer a significant systemic risk in financial markets, corporate fundamentals could weaken due to the U.S. downturn, and the risk premium could climb due to the worsening supply and demand balance. As such, our basic global credit strategy would be a defensive portfolio focused on quality credits.
For Japan, we believe that the adjustment in the risk premium will proceed apace in line with global trends, albeit slightly behind those in Europe and the U.S. We would recommend a cautious investment stance.
At the same time, past experience suggests that turmoil in the markets during a financial crisis can present unique investment opportunities. One effective move from a long-term standpoint might be to invest in credit taking advantage of the supply- and demand-related widening in the spread. We believe that a key investment theme over the coming three months will be to seek the best timing for taking risk based on constant analysis of both macroeconomic and corporate trends.
WASHINGTON (MarketWatch) — Fearing that financial-market turmoil and a weak housing market could cause the economy to spiral downward, the Federal Reserve moved aggressively Wednesday for the second time in eight days to lower interest rates and signaled it was ready to do more as needed.
The central bank lowered the federal funds rate by 50 basis points to 3%. Financial markets were hoping that the Fed would decide to cut rates by this amount. The Fed has cut rates by 1.25 percentage points in eight days, almost unheard of in central banking history.
The Fed hopes that the aggressive rate cuts will help the economy weather a period of weakness marked by falling home prices brought on by the subprime credit crisis, weaker consumer spending, higher energy costs and softening job growth. The strength of the moves suggested to some that the central bank is concerned that the economic picture could get even darker in the short-term.
The Fed can’t stop a downturn, but can help it be short and shallow rather than prolonged.
Some economists are worried that the central bank may be too late to rescue the economy from a long slump.
“Growth is clearly way, way, below trend. The economy, if not at a halt, is very close to it, and because of the state of financial markets, because of the state of housing and because of the credit crunch it could stay there for some time,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in an interview.
The Fed also announced that it was cutting its discount rate, the interest it charges on direct loans it makes to banks, by a half-point to 3.5%.
In a statement, the Fed said that downside risks to growth remain, and that it would act in a timely manner to address them.
Past Fed statements had minimized the concern about the economic outlook.
“There was no waffling. The Fed didn’t try to have it both ways. More rates cuts were clearly signaled,” Brusuelas added.
In the past, many economists had viewed the FOMC statement as compromise language designed to appeal to both hawks and doves on the panel. The FOMC appears now to be moving away from this approach. Some Fed watchers believe Fed Chairman Ben Bernanke is asserting his leadership over the policy-making panel.
Economists detected some effort by the Fed to cool expectations that the Fed would slash interest rates in coming months.
SAN FRANCISCO (MarketWatch) — The Federal Reserve’s decision Wednesday to cut interest rates raised hopes for an economic recovery. At the same time, signals that it has more cuts in store kindled fears that the Fed may go too far, feeding inflation and further jeopardizing an already-weak dollar.
“Whenever the Fed cuts rates by how much as it has, inflation concerns will come to the forefront of the market,” said Tom di Galoma, head of Treasury trading at Jefferies & Co.
The expected half-point cut to 3% amounts to the fifth rate-reduction by Ben Bernanke’s Federal Open Market Committee. The latest cut comes as policymakers stress economic growth - rather than inflation - is the most pressing risk facing the U.S. economy.
Stocks rallied after the decision. Investors took heart from the Fed’s statement that it’s keeping a close eye on financial markets, tighter credit conditions and the housing market’s deepening doldrums. Plus, they homed in on the Fed’s promise to “act in a timely manner as needed to address those risks.” In other words, make further cuts to the overnight lending rate.
WASHINGTON (MarketWatch) — Consumers inspired by Wednesday’s rate cuts in overnight lending rates shouldn’t count on consumer interest rates falling in response, said Bob Walters, chief economist for Quicken Loans.
“If you are looking to purchase a home or to refinance, I’m not so sure you’ll see mortgage rates fall,” he said Wednesday. “Mortgage rates don’t have that much room to fall.”
Last week, the average rate for a 30-year fixed mortgage was 5.48%, one of the lowest rates since 2004, according to Freddie Mac’s survey.
On Wednesday, the Federal Reserve’s Open Market Committee lowered the target for the federal funds rate by 50 basis points to 3%. In eight days the Fed has cut rates by 1.25 percentage points, the fastest pace in 20 years
Fixed-interest mortgage rates are set by markets based on long-term money rates, not short-term rates. If bond investors fear that the Fed is letting inflation get out of control, then long-term rates could rise, as they did on Wednesday after the rate-cut decision.
Bill Hampel, chief economist for Credit Union National Association, however, said he doesn’t see mortgage rates soaring.
“Mortgage rates are going to be attractive for quite some time,” Hampel said, suggesting that the weakness in the economy will keep long-term rates from rising too much.
Interest rates for other consumer products could drop. Adjustable-rate mortgages and some credit card rates are tied to short-term rates that closely follow the federal funds rate set by the Fed.
“Consumers will see rates on home-equity lines and credit cards tumbling over the next two months,” said Greg McBride, senior financial analyst at BankRate.com.
“With home-equity rates falling it will present an opportunity for financially well positioned homeowners with significant amount of equity to borrow at a very attractive cost,” McBride said. “Particularly with credit card debt, don’t use the lower rates as an excuse to pile on more debt, or put your debt repayment plans into hibernation.”
Mark Kantrowitz, publisher of FinAid, an online student loan resource, said he is now projecting lower interest rates on variable-rate federal education loans when consolidated on or after July 1.
“These projected decreases represent the largest decrease in federal education loan interest rates since 1992,” Kantrowitz said. “These rates represent the fourth lowest rates in the history of the student loan program, the other three lowest rates occurring in the three years after 9/11.”
The whole purpose of the rebate is to stimulate the economy. Those who want the economy to drag, would suggest that you do exactly the opposite. Give the Fed and the stimulus program a chance to work. Remember there are many who would gain if our economy would go into a deep recession. Some for reasons that I can not comprehend suggest that business, wall street and banks are the problem. Any idoit must understand that for any individual to prosper and see his dreams fullfilled we need business for jobs, banks to loan money so new jobs and opportunities are created and wall street to be sucessful . I am independent because I had dreams. the banks had faith in me, I always paid my debts and worked hard to succeed. WE all should learn from what we are facing now. The banks did not force anyone to borrow the money, force them to live above their means, and I doubt that any lender wanted anyone to face foreclosure. The blame is equal, accept it and take responsibility for the situattion, work for a solution and we all will come out of this trying times better off. The USA will be stronger when everyone in the USA becomes responsible individuals working for a better life for all. This country is great because we are a free country, free to further one’s education, free to own business, free to own one’s own home, free to decide if we want to prepare for a better future. With that freedom each person has a choice to make, take advantage of the freedom or sit on your ass . expecting the government to think, act and support you. Make responsible financial decision, pay your debts and work for success. That is what makes you and your country prosper. Like the old saying, learn to walk before you try to run.
Did you like this? Please If so, please bookmark it,InvestmentWatch relies on the financial support of its readers.
Your endorsement is greatly appreciated!
Possibly Related Posts:
- China issues detailed measures regulating cross-border trade settled in yuan
- The Number of Foreclosures on My Street
- The first country change it’s interest rate to negative
- President John Kennedy looked his fiscal budget and noticed that the largest line item expenditure was to the Federal Reserve
- A hilarious report from a guy about GDP
Did you like this? If so, please bookmark it,
No comments yet.