Monday, August 06, 2007

In U.S., Increasing market instability prompts predictions of action by the Fed.

Source: Forbes—“Market Prepapring for 2007 Fed Easing, but Economists do not Expect It Tomorrow”

Slipping stocks, diminished access to credit, and shrinking home values which could damage consumer spending are prompting speculation by market watchers that the U.S. Federal Reserve will move to cut interest rates in the near future.

There are other observers who claim that continued moderate growth—despite the “painful” aspects of the current credit crunch—mean that rates will not be lowered…unless inflation becomes a problem.

The Fed will be meeting tomorrow—on August 7—and is then only expected to note the ongoing uncertainty of markets. Analysts believe that a rate cut is not likely to be announced before October.

Likewise, commentary on the threat of inflation in this market environment is mixed. An analyst with Bank of America contends that the tight domestic labor market indicates that concern over the possibility of inflation is high. On the other hand, an analyst with Merrill Lynch asserts that “inflation pressures have slackened.”

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