Analysts said that the financial market turmoil stemming from the collapse of Wall Street giant Lehman Brothers had boosted odds for a cut in interest rates by the US Federal Reserve yesterday.
The failure of weekend talks to save Lehman has sparked worries about a financial tsunami, prompting the Fed to open up new liquidity to avert a knock-on effect.
Some economists said the Fed also needed to cut rates to keep credit flowing, even though last week most analysts had been expecting the policy meeting yesterday to hold the federal funds rate at 2 percent, below the level of inflation. The Fed’s rate decision was expected by 1815 GMT yesterday.
“Markets are now expecting the Fed to cut rates 25 basis points tomorrow [yesterday], although there was no real macroeconomic reason for them to do so prior to last night,” said Sherry Cooper, chief economist at BMO Capital Markets.
“One thing is certain, the Fed will do whatever it takes to calm financial markets. Inflation is no longer a major concern with oil and other commodity prices falling,” she said.
The futures market was pricing in a 68 percent chance of a quarter-point cut in rates, up from a 9.0 percent chance last week.
“The sudden bankruptcy of Lehman Brothers over the weekend has led to another dangerous escalation of the crisis in the US financial markets — a crisis that has been seriously harming the performance of the economy for over a year now,” economist Brian Bethune at Global Insight said.
“The economy is very weak, the recession wolves are pounding down the door and the financial system faces new deflationary threats from the bankruptcy of Lehman Brothers. This is an emergency situation and an aggressive response from the Fed is needed,” he said.
But Barry Ritholtz at Ritholtz Research & Analytics said a rate cut would be a mistake, noting that earlier rate cuts have failed to filter their way into consumer or business lending because of tight credit.
“We have survived the initial impact caused by the collapse of Lehman Brothers,” he said. “The Fed would be well served, with rates now at 2 percent, to keep some powder dry for the latter innings of this crisis.”
Cary Leahey, senior US economist at Decision Economics, said he believed the Fed should fight the urge to respond to market pressure for a rate cut.
He said a rate cut might be construed as a sign of panic.
“It might send a signal that they [Fed members] know something we don’t know” about the financial crisis, Leahey said.
Super Typhoon Kong-rey is the largest cyclone to impact Taiwan in 27 years, the Central Weather Administration (CWA) said today. Kong-rey’s radius of maximum wind (RMW) — the distance between the center of a cyclone and its band of strongest winds — has expanded to 320km, CWA forecaster Chang Chun-yao (張竣堯) said. The last time a typhoon of comparable strength with an RMW larger than 300km made landfall in Taiwan was Typhoon Herb in 1996, he said. Herb made landfall between Keelung and Suao (蘇澳) in Yilan County with an RMW of 350km, Chang said. The weather station in Alishan (阿里山) recorded 1.09m of
STORM’S PATH: Kong-Rey could be the first typhoon to make landfall in Taiwan in November since Gilda in 1967. Taitung-Green Island ferry services have been halted Tropical Storm Kong-rey is forecast to strengthen into a typhoon early today and could make landfall in Taitung County between late Thursday and early Friday, the Central Weather Administration (CWA) said yesterday. As of 2pm yesterday, Kong-Rey was 1,030km east-southeast of Oluanpi (鵝鑾鼻), the nation’s southernmost point, and was moving west at 7kph. The tropical storm was packing maximum sustained winds of 101kph, with gusts of up to 126 kph, CWA data showed. After landing in Taitung, the eye of the storm is forecast to move into the Taiwan Strait through central Taiwan on Friday morning, the agency said. With the storm moving
NO WORK, CLASS: President William Lai urged people in the eastern, southern and northern parts of the country to be on alert, with Typhoon Kong-rey approaching Typhoon Kong-rey is expected to make landfall on Taiwan’s east coast today, with work and classes canceled nationwide. Packing gusts of nearly 300kph, the storm yesterday intensified into a typhoon and was expected to gain even more strength before hitting Taitung County, the US Navy’s Joint Typhoon Warning Center said. The storm is forecast to cross Taiwan’s south, enter the Taiwan Strait and head toward China, the Central Weather Administration (CWA) said. The CWA labeled the storm a “strong typhoon,” the most powerful on its scale. Up to 1.2m of rainfall was expected in mountainous areas of eastern Taiwan and destructive winds are likely
The Central Weather Administration (CWA) yesterday at 5:30pm issued a sea warning for Typhoon Kong-rey as the storm drew closer to the east coast. As of 8pm yesterday, the storm was 670km southeast of Oluanpi (鵝鑾鼻) and traveling northwest at 12kph to 16kph. It was packing maximum sustained winds of 162kph and gusts of up to 198kph, the CWA said. A land warning might be issued this morning for the storm, which is expected to have the strongest impact on Taiwan from tonight to early Friday morning, the agency said. Orchid Island (Lanyu, 蘭嶼) and Green Island (綠島) canceled classes and work