This week, even though there are many economic data will be published, many financial institutions performance will debut, but the most important issue is the Fed will cut interest rates, the number of base points. Bloomberg's Economist survey shows the Fed will cut interest rates 0.5 to 2.50% last Friday bear in the event of a liquidity crisis, the market interest rate cuts expected to 0.75%, some analysts even expected to be 1%.
It was pointed out that this http://finance. the Fed's interest rate policy may become a turning point in many markets, crude oil market can tell people that the Fed's decision is important. Over the past few weeks energy prices soar, but many market participants expressed this trend and basic surface and no relationship, and the financial market turbulence and dollar decline is currently the most important factor. Precious metal market. US dollar exchange rate and financial market stability becomes each big market-linked bonds, the Fed's interest rate policy is especially eye-catching.
From interest rate futures market information is 88 basis points, i.e. a 48% chance cuts 0.75%, 52% chance of 1% interest rate reduction. Interest rate futures market prices reflect the market balance, interest rate options market is more "personalized", the chances of interest rate cuts 0.5% 19.5% interest rate reduction 1.25% chance also 10.8%.
Current fed face two problems: economic growth and inflation. According to the Fed's statement last August 7 days before the Fed has been stressed that inflation risks; to 18 September, the main risks to economic growth; in the ensuing two declarations, the relationship between the two tend to balance; while the 30 January this year, once again become major economic risk.
Just like the United States Brookings senior fellow Douglas W. Elmendorf, although modern monetary policymakers have many rules, but the Bank does not respond to the financial crisis "manual". Federal Reserve Chairman Ben Bernanke likes to go ahead in the market, namely the market and to counter market crisis. Therefore, as long as he thinks necessary, interest rates are not the problem.
Another example can also prove that Ben Bernanke at to the Ordinance. Ben Bernanke has indicated that "the Central Bank and other regulators to protect against possible for specific financial instruments or financial institutions to develop specific rules of seduction", but due to the deterioration of the credit markets, the Fed said last week, for mortgage-backed securities (MBS) market price up to 2000 billion rescue package.
The real question is whether the interest rate cuts useful?:
Interest rate cuts, of course, you can increase the fluidity of the market, but now is not the lack of money. Subprime lending market crisis is a liquidity crisis, borrowers were unable to repay, and the Fed rate cut and cannot directly reduce housing loan interest rates. Over the past few months market performance attests to this.
While the credit market crisis is a crisis of confidence. Solvency crisis financial institutions a loss which is not fully exposed, leading to mistrust between financial institutions, are no longer mutually financing, credit crisis arise. The Fed's rate cut on this powerless. At this point, the US Federal Reserve launched many make the market more opaque rescue policy (such as last week's MBS for national debt policy), the leading financial institutions risk exposure, the more difficult and may cause market worse. But in the end, excessive interest rate cuts will let investors worry about prices soaring.
Interest rate cuts 0.75% may allow more calm, market operation market will continue to follow the past track running, the dollar will face pressure on interest rates of 1% would cause some market shock, but does not change the market orientation; cuts 0.5% or less, you will be on the market is very large, and even fundamental effects.
In addition, this week also concern development focused on the United States President George w. Bush has given the deterioration in the credit market crisis and economic recession odds, has decided on Monday and its financial markets working group meetings to seek solutions. The Organization's members include the United States Treasury Secretary Paulson and Fed Chairman Ben Bernanke, and SEC and commodity futures trading Commission Chairman. Experts point out that, because the situation is urgent, the White House may be announced after the new economy and relieve tension in the market.
Secondly, Bear Stearns, Lehman Brothers, Goldman Sachs and Morgan Stanley and three other major financial firms, will be held on Monday, Tuesday, Wednesday announced first quarter performance, and thus can assess United States subprime mortgage crisis and credit crunch crisis is on Wall Street have caused further damage. Last week, Bear Stearns was the serious deterioration of the liquidity position, the trend of the US Federal Reserve for help, the market worried that there are other manufacturers also face the same crisis, some even directly to a Lehman Brothers will be the second victim. Experts point out that the financial industry's latest results announcement for the helped market assessment United States financial services industry has been caught in a systemic crisis.
In addition, Bear Stearns on Friday after the fed and Morgan Bank emergency, whether their financial situation has stabilised or rescue units there are further action, the focus of concern.
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