Most investors are expecting the Federal Reserve to cut its base federal funds interest rate next month as part of the move to keep credit flowing in the economy. But some say the Fed faces a dilemma because a cut could signal further economic headwinds.
"Market optimism is back. But if it's based mainly on expectations for a Fed rate cut, then the recent stock market recovery is on shaky ground," said Benjamin Tal at CIBC World Markets. "Even if [Fed Chairman Ben] Bernanke ends up cutting, it would be an admission that the situation is really bad, with negative macroeconomic implications -- hardly a positive scenario for equities."
Bonds remained well-bid as some investors opted to hold safe-haven investments like Treasuries during the market turmoil.
The yield on the 10-year US Treasury bond eased to 4.633 percent from 4.673 percent a week earlier. The 30-year bond yield eased to 4.897 percent from 5.000 percent. The drop in yields reflected a rise in prices.
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