As expected the Federal Reserve executed the second rate reduction by one-quarter percentage point or 25 basis points to 4.50 percent on Wednesday. Ben Bernanke has cut 50 basis points from 5.25% to 4.75% earlier in September. The 9-1 decision to cut rates on Wednesday was opposed by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. He preferred no change in the funds rate.
“The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction,” the Fed acknowledged in a statement explaining its action. In response to the latest cut, commercial banks including Bank of America, Wells Fargo and KeyCorp. announced that they were cutting their prime lending rate – for certain credit cards, home equity lines of credit and other loans – by a corresponding amount, to 7.50 percent.
Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group and other economists think the Fed probably will leave the funds rate alone when its meets next on Dec. 11, the last session of the year. While the stocks cheer the announcement, the oil prices soared to a record $95 a barrel. This put pressure on Bernanke as increases in energy and commodity prices have put renewed upward pressure on inflation.
Now that the interest rate has been reduced the gap has widen between U.S. and Malaysian. It would be interesting to see if the Malaysian Central Bank will be under pressure to cut the rate as well. If it plans to have stronger ringgit, then the governor does not have to do anything – just sit tight. However this would invite speculators and to intervene means the central bank have to buy dollars. Would it be more efficient to reduce rate then? Furthermore the inflation is going up regardless of the rate due to poor economic management.
On the side note, I blogger earlier how the Google amazingly leaps to $700 from $600 within 20-days of trading and I can assure you that this might not happen again anytime soon within your lifetime. The stock is just spectacular. It’s fabulous. For readers who have been following my journey to the Googleplex, my position has breached the 400 percent profit. However it weren’t with fear and greed along the way especially when you saw how the stock was trying very very hard to stay above the $700 level but slipped on various occasions.
Other Articles That May Interest You …
- Google leaps to $700 from $600 within 20-days trading
- Rate Cut’s effect – high Oil Prices and weaker Dollar
- Bernanke admitted defeat and Released the Pressure
- Reasons why U.S. rate cut is a Bad Idea
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November 1st, 2007 by financetwitter
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