Wednesday, 19 September 2007

Fed cuts 50 basis points

So the Fed went for the jugular yesterday, cutting both the federal funds rate and the discount rate by 50 basis points.

Yesterday's economic reports made the extent of the cuts a bit easier to justify. From Bloomberg:

Prices paid to U.S. producers fell more than forecast in August...

The 1.4 percent decrease, the biggest since October, followed a 0.6 percent increase in July, the Labor Department said today in Washington. So-called core prices, which exclude fuel and food costs, rose 0.2 percent after a 0.1 percent gain the month before...

A private survey by RealtyTrac Inc. showed the number of Americans who may lose their homes to foreclosure more than doubled in August from a year earlier as subprime borrowers with adjustable-rate mortgages saw their monthly payments rise.

Confidence among homebuilders tied a record low in September as increased lending restrictions and higher borrowing costs concerned buyers, a report from the National Association of Home Builders/Wells Fargo said. The index of builder sentiment dropped to 20, matching the January 1991 reading as the weakest ever, the Washington-based association said today.

Investors took the rate decision well, sending stock markets soaring, the S&P 500 closing the day up 2.9 percent.

Investors in the UK, already rocked by Northern Rock, can perhaps also start dreaming of a rate cut after the latest UK inflation numbers. From FT:

Inflation fell last month to its lowest level in more than a year, official data showed on Tuesday, giving the Bank of England more leeway to focus on the turmoil in the financial sector.

August’s annual consumer price inflation rate dipped to 1.8 per cent, below the Bank’s 2 per cent target for a second consecutive month, after falling sharply to 1.9 per cent in July. Economists had expected inflation to remain at 1.9 per cent.

Meanwhile, in Germany, investor confidence declined as the ZEW index fell from minus 6.9 in August to minus 18.1 points in September.

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