The US Federal Reserve’s move to match its historic low in interest rates along with a downbeat economic outlook suggests the central bank is girding for more actions to stave off a crippling deflationary threat, analysts said.
The Fed cut its key lending rate a half point on Wednesday to 1 percent in the latest action to ease a credit crisis that is strangling the US economy, but also noted that “downside risks to growth remain” for the world’s biggest economy.
“It is clear that the Fed has moved from a defensive, case-by-case crisis management approach in the summer months to an offensive and comprehensive attack on the deflationary forces in the economy,” said Brian Bethune, chief US economist at IHS Global Insight.
PHOTO: AFP
Bethune predicts the Fed will bring the federal funds rate below the previously unthinkable level of 1 percent despite fears of a Japanese-style deflation threat that is unresponsive to monetary policy.
He said the Fed is likely to cut another 50 basis points on Dec. 16, which would be the lowest since the inception of the funds rate in 1954.
The economist said Fed chairman Ben Bernanke has made it clear he will use all tools at his disposal to break the grip of a worldwide credit crunch.
“The Fed has broadened and amplified its response to the escalation of the financial crisis and the recessionary forces now gaining momentum in the economy.
“In the month of October, the Fed slashed interest rates by 100 basis points, and also committed to close to US$2 trillion of additional short-term lending in the next few months,” he said. “That is a massive commitment to unlocking the credit markets.”
In 2003 and 2004, the Fed did not go below 1 percent amid concerns about how low rates could hurt small investors and money market funds.
But Peter Kretzmer, senior economist at Bank of America, pointed out that the latest statement “said nothing that would indicate technical issues preventing it from lowering rates further.”
The cut in the federal funds rate, which impacts on a number of other borrowing rates, followed an emergency half-point cut on Oct. 8 coordinated with other central banks to help fight a worldwide credit crunch.
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” said the Federal Open Market Committee (FOMC) after the unanimous decision widely expected by financial markets.
Some analysts said the glum tone of the statement suggested the Fed could cut rates further, but would likely await the impact of its actions because of potential dangers of lowering its base rate below 1 percent — the level in 2003 and 2004 that likely fueled the US housing boom-and-bust cycle.
The statement “opens the door to more easing if incoming data continue to deteriorate,” said Aaron Smith, an analyst at Moody’s Economy.com.
Cary Leahey, senior economist at Decision Economics, said the FOMC “was reluctant to lower rates further than 1.0 percent but they did say that downside risks remain.”
This suggests “they want to wait till the next meeting before cutting again,” he said.
“The Fed doesn’t want to be caught in a trap of leaving rates too low too long.” Leahey said. “There is also a feeling they want to keep their powder dry.”
AIR SUPPORT: The Ministry of National Defense thanked the US for the delivery, adding that it was an indicator of the White House’s commitment to the Taiwan Relations Act Deputy Minister of National Defense Po Horng-huei (柏鴻輝) and Representative to the US Alexander Yui on Friday attended a delivery ceremony for the first of Taiwan’s long-awaited 66 F-16C/D Block 70 jets at a Lockheed Martin Corp factory in Greenville, South Carolina. “We are so proud to be the global home of the F-16 and to support Taiwan’s air defense capabilities,” US Representative William Timmons wrote on X, alongside a photograph of Taiwanese and US officials at the event. The F-16C/D Block 70 jets Taiwan ordered have the same capabilities as aircraft that had been upgraded to F-16Vs. The batch of Lockheed Martin
GRIDLOCK: The National Fire Agency’s Special Search and Rescue team is on standby to travel to the countries to help out with the rescue effort A powerful earthquake rocked Myanmar and neighboring Thailand yesterday, killing at least three people in Bangkok and burying dozens when a high-rise building under construction collapsed. Footage shared on social media from Myanmar’s second-largest city showed widespread destruction, raising fears that many were trapped under the rubble or killed. The magnitude 7.7 earthquake, with an epicenter near Mandalay in Myanmar, struck at midday and was followed by a strong magnitude 6.4 aftershock. The extent of death, injury and destruction — especially in Myanmar, which is embroiled in a civil war and where information is tightly controlled at the best of times —
Taiwan was ranked the fourth-safest country in the world with a score of 82.9, trailing only Andorra, the United Arab Emirates and Qatar in Numbeo’s Safety Index by Country report. Taiwan’s score improved by 0.1 points compared with last year’s mid-year report, which had Taiwan fourth with a score of 82.8. However, both scores were lower than in last year’s first review, when Taiwan scored 83.3, and are a long way from when Taiwan was named the second-safest country in the world in 2021, scoring 84.8. Taiwan ranked higher than Singapore in ninth with a score of 77.4 and Japan in 10th with
SECURITY RISK: If there is a conflict between China and Taiwan, ‘there would likely be significant consequences to global economic and security interests,’ it said China remains the top military and cyber threat to the US and continues to make progress on capabilities to seize Taiwan, a report by US intelligence agencies said on Tuesday. The report provides an overview of the “collective insights” of top US intelligence agencies about the security threats to the US posed by foreign nations and criminal organizations. In its Annual Threat Assessment, the agencies divided threats facing the US into two broad categories, “nonstate transnational criminals and terrorists” and “major state actors,” with China, Russia, Iran and North Korea named. Of those countries, “China presents the most comprehensive and robust military threat
RSS