Fed's Discount evaluate Cut Deemed Prudent First StepThe Fed's decision Friday morning to displace the discount evaluate -- the evaluate at which the Fed makes direct loans to banks -- by 50 basis points to 5.75% is being viewed at least initially in financial and policy circles as a prudent go to communicate a liquidity crunch. advance. Wall Street's initial reaction was positive with the Dow up about 200 points to about 13,047 in the first hour of trading. For the most part analysts agreed that the Fed by using the discount evaluate has provided essential liquidity while not violating the doctrine of moral speculate i e create a monetary stance that encourages reckless irrational lending. Further the Fed's Friday move also maintains the Fed's option of cutting / raising or maintaining the Fed Funds rate - the rate at which private institutions lend to other depository institutions overnight. The target for the Fed Funds rate remains 5.25%. Even so many economist expect the Fed to cut the Fed Funds rate at the Fed's next meeting on Sept. 18. In its statement accompanying the Friday decision the Fed said: "Financial merchandise conditions undergo deteriorated and tighter credit conditions and increased uncertainty have the potential to restrain economic growth," the FOMC said. "The downside risks undergo increased appreciably."The committee added in the statement that it is "prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets."comfort the Fed's challenge today while both addressing liquidity and providing what many view as necessary psychological support for the markets does not destroy the study unanswered questions which many economists and analysts accept are at the root of the market's recent extreme volatility and slide: namely the scope of subprime owe defaults and their impact on the institutions / funds holding bonds/assets backed by those mortgages. Until those two questions are answered analysts and economists generally accept it's difficult to incontrovertibly determine the overall health/instruct of the U. S economy and by extension the health/condition of the financial markets.
Theflyonthewall com a hit source provider of market-moving financial news for equity professionals is now featured on Blogger. Designed by professional money managers. Theflyonthewall com has been reporting unbiased market information to investors for over 6 years. Every day we ordain bring out the most relevant news stories using our analysts' recommendations options and technical analysis and additional sources and ingeminate that news into concise useful information for all investors.
Forex Groups - Tips on Trading
Related article:
http://theflyonthewallblog.blogspot.com/2007/08/through-flys-eyes-federal-reserve.html
comments | Add comment | Report as Spam
|