Will the Fed sell out the Dollar to buy insurance against a deep recession?
*Financial Times, by Krishna Guha and James Politi, January 31, 2008:
"The Federal Reserve on Wednesday cut interest rates by another 50
basis points and signalled that the door was open to further reductions
in an aggressive move to combat the risk of a US recession.
The move to cut rates to 3 per cent initially triggered a broad rally
in stocks – the S&P 500 jumped 1.7 per cent in the first 45 minutes
after the announcement – only for the market to turn lower just before
the closing bell.
The dollar meanwhile fell to a record low against the euro before
closing slightly higher.
The 50 basis point reduction in the Federal Funds rate came hot on the
heels of last week’s emergency 75 basis point cut. The combined 125
basis point reduction represents the most abrupt easing of monetary
policy by the US central bank since the early 1980s.
The scale of the move reflects chairman Ben Bernanke’s determination to
get ahead of the deterioration in the US economy following criticism
that the Fed was “behind the curve” on monetary policy.
In addition to offsetting the decline in its base case forecast for the
economy, the Fed wants to buy some insurance against the possibility
that the worst-case outcome for growth – a deep and protracted
recession – could materialise."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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