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Wednesday, December 17, 2008

Fed sets target range for funds rate of 0 to 0.25%

The Federal Reserve cut the federal funds rate by three quarters of one percent to 0.25% but added that it will let the rate float down to zero. By setting the new target range, the Fed signaled it has exhausted the funds rate as a tool for monetary policy. The target range will also be useful because the funds rate would likely have traded below any target at such a low level. Economists stressed the central bank still has ammunition to counter the recession by "using the power of the printing press" to add money to its balance sheet.

Text of Fed statement on December 17th, 2008 meeting

For immediate release



The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0% to 0.25%.



Since the committee's last meeting, labor-market conditions have deteriorated, and the available data indicate that consumer spending, business investment and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.



Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the committee expects inflation to moderate further in coming quarters.



The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.



The focus of the committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open-market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.



Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.



Voting for the FOMC monetary policy action were Ben S. Bernanke, chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.



In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 0.5%. In taking this action, the board approved the requests submitted by the boards of directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis and San Francisco. The board also established interest rates on required and excess reserve balances of 0.25%.


Breaking News: The Fed cut interest rate into 0% - 0.25% (range, not like usually)

The Federal Reserve voted today to lower the Federal Funds target rate 75 - 100 basis points to 0 - .25%. The move was a shock to the market which had anticipated just a 50 bps cut, and represents the lowest mark in history. The markets had climbed in morning trading on anticipation of the move.



Despite the Fed move, it’s unlikely there will be any affect on the actual rate, as banks were already lending to each other at rates close to zero last week.



The Fed Funds rate doesn’t actually set a number, rather it sets a target interest rate which fluctuates based on the availability of cash. Since the Fed has injected mounds of cash into the financial system of late, that number had already been next to zero recently, meaning this Fed move is cosmetic more than anything.



Ultimately, it signals that the Fed will continue to operate under a policy of buying up bad debt, injecting cash into the market and lending at rates a shade above zero.

Friday, December 5, 2008

Dollar rises after dismal Nov. jobs data. U.S. non-farm payrolls plunge, dollar gains on safe-haven demand

The dollar rose against most currencies except the Japanese yen Friday, as a brutal plunge in November U.S. nonfarm payrolls enhanced the greenback's safe-haven appeal in the face of an increasingly bleak outlook for the global economy.



The dollar index (DXY), which tracks the performance of the dollar against a trade-weighted basket of six major currencies, rose 0.6% to 87.13, up from 86.533 in North American activity late Thursday.



U.S. nonfarm payrolls plunged by 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday. Economists had expected job losses of around 350,000.



In addition, the unemployment rate rose from 6.5% in October to 6.7% in November, the highest jobless rate since October 1993.



"What's happened recently is that weak U.S. data -- and this is certainly weak -- have raised concerns about the U.S. and global economy and that's actually benefited the U.S. dollar," said Meg Browne, currency strategist at Brown Brothers Harriman & Co.



"With jobs so weak, it's a negative outlook and it means that the deleveraging process could continue," Browne said. "What's the safe haven currency -- it's the U.S. dollar. The yen is a beneficiary as well."



Euro, pound under pressure


The euro slumped 0.7% to $1.2687, down from $1.2786, as Germany's economics ministry reported an unexpectedly large drop in October manufacturing orders. The euro hit an intraday low of $1.2627.



The British pound fell 0.5% to $1.4619, up from $1.4684


The dollar, however, declined 0.4% versus the Japanese currency, changing hands at 91.86 yen compared with 92.22 yen Thursday.



The dollar came under pressure Thursday, sinking after the Bank of England and the European Central Bank made historic cuts in key interest rates.



The Bank of England slashed its key rate by a full percentage point to 2% -- matching the lowest benchmark rate since the central bank's founding in 1694.



The ECB made the largest cut in its 10-year history, dropping its key rate by 75 basis points, or three-quarters of a percentage point, to 2.5%.



Still, "the post-rate decision market reaction was lukewarm; neither the BOE nor the ECB surpassed the most aggressive of market rate expectations and so the euro and sterling rallied modestly," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.



The pound sank to a six-and-a-half year low versus the dollar ahead of the rate decision and hit an all-time low versus the euro before rebounding.



Remarks by ECB President Jean-Claude Trichet in his news conference following Thursday's decision were ambiguous on prospects for a January rate cut, although most economists have penciled in further, aggressive easing in the months ahead.



"As we all know, Trichet can be pretty darn clear when he wants to - but not yesterday," Gallo said. "We think that there are some big splits among ECB policymakers, and this could easily hinder further policy easing" in the first quarter of 2009.



But delay would be postponing the inevitable, he added.



"The longer the ECB takes, the more likely it is the euro will be the main loser during the second half of the year," Gallo said.



German manufacturing orders saw a seasonally-adjusted 6.1% monthly fall in October, according to news reports. Economists were looking for a modest rise of 0.4% after a downwardly revised September plunge of 8.3%.



Strategists at BNP Paribas said euro and sterling could be in for some renewed pressure amid the inability of equity markets to move higher.



Weaker equities and increased risk aversion have boosted the dollar and the Japanese yen.



"With equity markets failing to gain any support from the current monetary policy easing, we now expect the euro, and particularly sterling, to come under renewed downward pressure, while the U.S. dollar is set to extend its broad-based recovery over the medium term," they wrote.


Dollar rises after dismal Nov. jobs data. U.S. non-farm payrolls plunge, dollar gains on safe-haven demand

The dollar rose against most currencies except the Japanese yen Friday, as a brutal plunge in November U.S. nonfarm payrolls enhanced the greenback's safe-haven appeal in the face of an increasingly bleak outlook for the global economy.



The dollar index (DXY), which tracks the performance of the dollar against a trade-weighted basket of six major currencies, rose 0.6% to 87.13, up from 86.533 in North American activity late Thursday.



U.S. nonfarm payrolls plunged by 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday. Economists had expected job losses of around 350,000.



In addition, the unemployment rate rose from 6.5% in October to 6.7% in November, the highest jobless rate since October 1993.



"What's happened recently is that weak U.S. data -- and this is certainly weak -- have raised concerns about the U.S. and global economy and that's actually benefited the U.S. dollar," said Meg Browne, currency strategist at Brown Brothers Harriman & Co.



"With jobs so weak, it's a negative outlook and it means that the deleveraging process could continue," Browne said. "What's the safe haven currency -- it's the U.S. dollar. The yen is a beneficiary as well."



Euro, pound under pressure


The euro slumped 0.7% to $1.2687, down from $1.2786, as Germany's economics ministry reported an unexpectedly large drop in October manufacturing orders. The euro hit an intraday low of $1.2627.



The British pound fell 0.5% to $1.4619, up from $1.4684


The dollar, however, declined 0.4% versus the Japanese currency, changing hands at 91.86 yen compared with 92.22 yen Thursday.



The dollar came under pressure Thursday, sinking after the Bank of England and the European Central Bank made historic cuts in key interest rates.



The Bank of England slashed its key rate by a full percentage point to 2% -- matching the lowest benchmark rate since the central bank's founding in 1694.



The ECB made the largest cut in its 10-year history, dropping its key rate by 75 basis points, or three-quarters of a percentage point, to 2.5%.



Still, "the post-rate decision market reaction was lukewarm; neither the BOE nor the ECB surpassed the most aggressive of market rate expectations and so the euro and sterling rallied modestly," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.



The pound sank to a six-and-a-half year low versus the dollar ahead of the rate decision and hit an all-time low versus the euro before rebounding.



Remarks by ECB President Jean-Claude Trichet in his news conference following Thursday's decision were ambiguous on prospects for a January rate cut, although most economists have penciled in further, aggressive easing in the months ahead.



"As we all know, Trichet can be pretty darn clear when he wants to - but not yesterday," Gallo said. "We think that there are some big splits among ECB policymakers, and this could easily hinder further policy easing" in the first quarter of 2009.



But delay would be postponing the inevitable, he added.



"The longer the ECB takes, the more likely it is the euro will be the main loser during the second half of the year," Gallo said.



German manufacturing orders saw a seasonally-adjusted 6.1% monthly fall in October, according to news reports. Economists were looking for a modest rise of 0.4% after a downwardly revised September plunge of 8.3%.



Strategists at BNP Paribas said euro and sterling could be in for some renewed pressure amid the inability of equity markets to move higher.



Weaker equities and increased risk aversion have boosted the dollar and the Japanese yen.



"With equity markets failing to gain any support from the current monetary policy easing, we now expect the euro, and particularly sterling, to come under renewed downward pressure, while the U.S. dollar is set to extend its broad-based recovery over the medium term," they wrote.


Merrill Lynch Says Oil Could Fall to $25

Oil prices are likely to keep falling until well into next year and could reach $25 a barrel before recovering, U.S. bank Merrill Lynch has said.



In a research report published on Thursday, it said oil prices should begin to rally in the second half of 2009.



Merrill Lynch recently cut its forecast for the average price of U.S. crude oil futures and North Sea Brent crude oil to $50 a barrel from a previous estimate for both crudes of $90.



"With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet," it said. "In the short-run, market participants will focus on both OPEC and perhaps even non-OPEC producer responses to balance the market."



"A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required," it said.



"In our view, oil prices could find a trough at the end of Q1 2009 or early Q2 2009 with the seasonal slowdown in demand. Then, as economic activity starts to strengthen, we see oil prices posting a modest recovery in the second half of 2009."



Oil prices hit a peak above $147 a barrel in July but have fallen more than $100 since then as the severity of the global economic downturn has become clear.




Merrill Lynch said a combination of high oil prices and high leverage had proven dangerous for the global economy. "On October 1, we lowered our average crude oil price forecast in 2009 to $90 per barrel based on a global GDP growth forecast of 3 percent. Since then, our economists have revised their 2009 global GDP growth forecast down to 1.3 percent, a scenario consistent with a global recession.



"As a result, we are now lowering our average WTI and Brent crude oil price forecast to $50 per barrel for 2009."



It said the major downside risk to its price forecast would be a revision of economic growth assumptions for China, which are currently at 8.6 percent for next year.



"In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations," it said. "We now expect an outright contraction in global oil demand in 2009."


Copyright 2008 Reuters. Click for restrictions.

Breaking News: US Nonfarm Payroll Drops Biggest Since December 1974

US Nonfarm Payroll drops biggest since December 1974 of -533,000. Much worse than expected of -320,000.

Thursday, December 4, 2008

Breaking News: BoE Cut Rate Into the Lowest Level Since 1939

By Natasha Brereton Of DOW JONES NEWSWIRES




The Bank of England slashed the U.K. Bank rate Thursday by 100 basis points to 2.0% in a dramatic attempt to buoy up the ailing U.K. economy.



The last time the BOE's key rate was cut to this level was in October 1939. It has never been lower since the central bank was founded in 1694.



Thursday's reduction reflects the severity of the deterioration in the economic outlook, and follows a 150 basis point cut in November and a 50 basis point decrease in October in coordination with other major central banks.



A majority of economists surveyed by Dow Jones Newswires had expected a full-percentage-point cut, while investors were fully pricing in a 150-basis-point decrease ahead of the announcement.



The move by the BOE marked the latest in a succession of aggressive rate cuts by central banks, as they attempt to support their ailing economies.



Sweden's Riksbank cut its key policy rate by 175 basis points to 2% Thursday, marking its biggest rate reduction since 1992, while the Reserve Bank of New Zealand cut its Official Cash Rate an unprecedented 150 basis points to a five-year low of 5%.


The Reserve Bank of Australia and the Bank of Thailand also made 100 basis point rate cuts earlier this week.



The European Central Bank is expected to announce a 50-basis-point reduction later Thursday.



-By Natasha Brereton, Dow Jones Newswires; +44 20 7842 9254;


natasha.brereton@dowjones.com




(END) Dow Jones Newswires



04-12-08 1200GMT



Copyright (c) 2008 Dow Jones & Company, Inc.