Sunday, October 28, 2007

The Fed's Next Move

BBC Business news speculates in another 50 basis point cut by the Fed on tuesday. They should of course raise rates considering the massive inflation we see in financial markets, particularly commodities, and at the very least repeal the September cut and preferably go even higher than that, but that is simply not going to happen. There is a small probability of both unchanged rates and a 50 basis point cut, but a 25 basis point cut seems like the most likely move. However, I regard the probability of a 50 basis point move to be higher than unchanged rates. Bernanke showed, as Cyndi Lauper would have put it, his true colors when he made the 50 basis point cut in September, and so even though another 50 basis point cut would be insane with $92 oil and $787 gold, I wouldn't dare to rule it out. Still, with some at the Fed presumably somewhat more sane, a 25 basis point cut remains more likely.

The Swedish Riksbank will by contrast probably raise rates another 25 basis points, reaching 4%. The Swedish krona reached a post-1992 peak of 6.38 versus the dollar on Friday. With the interest differential being reduced from 175 basis points to likely just 50 basis points -25 if the Fed cuts by 50 points- the rising trend of the Swedish krona versus particularly the U.S. dollar will likely continue.


Anonymous Anonymous said...

Some analysts mean that when the 2-year T-note interest rate is so much below the Fed fund rate, FED have to lower interest rates.

That is why they lowered so much in September.


9:05 AM  

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