Fed cuts rate by 50 bps: Are experts happy?

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Fed cuts rate by 50 bps: Are experts happy?


The US Fed has cut Federal Funds rate by 50 bps to 3%, reports CNBC-TV18. Fed officials said they see a deepening in housing contraction and soft labour markets. According to them, financial markets are still under considerable stress and the downside risks to growth remain. They added that credit has tightened for businesses and households.

Robert Doll, Black Rock, said, “Well the market may be viewed as driving the Fed, although the market has been up a lot since the Fed moved up last week - we were up 9% from Tuesday’s low of last week. So if this was the case, the Fed would not have done anything and it does matter that the Fed doing what it has done and probably some more is a necessary, but not a sufficient condition for us to get back on track.”

William Gross, Pimco said, “Well they have come a long way - they have come 225 bps. So I guess there is not much left in terms of Fed’s downward track. They have cited the credit conditions and I think that there is justification for that. There are still some problems in the monolines and the freezing up of the credit markets despite the three-month Libor rate which is relatively normal. But the big problem for the Fed, I think is that they must try to lower the 30-year mortgage rate and that is difficult to do and to bring them down requires a lot in terms of Fed fund rate.”

Martin Feldstein, CEO, National Bureau of Economic Research, said, “I think that it was an appropriate move bringing the rate down to 3%; now puts the Fed in a supportive mode and a week ago or two weeks ago, they were not there. So I think that it was a good move.”

Jerry Webman, Oppenheimer Funds said, “The Fed is doing what the market wanted it to do. They are doing what the economy said they are to do. They have confidence in their growth and the inflation forecast they are not worried about inflation. They are worried about the continual lock-up in the financial markets gonna deal with.”

Michael Metz, Oppenheimer & Co said, “I think Fed's rate cut is a non-event here. The FOMC is committed to salvaging the economy regardless of inflation risks. I still expect long-term rates to go higher regardless of Fed action. The equity markets are likely to resume their decline & the issue of financial stress hasn't been resolved yet.”

Ashish Goyal, Head-Asian Equities, Prudential Corp said, “Even though the Fed cut came as per expectations, EMs will remain volatile and are unlikely to be rangebound in the short-term. Risk aversion has increased and earnings expectations have rolled back.”

Maarten Jan Bakkum, EM Strategist, ABN Amro AMC, said, “The Fed cut should not move the markets too much as it is fully priced in. For the next 6 months, EMs should perform relatively well.Capital flows should continue to move from developed to emerging markets. Commodity prices are likely to remain strong.”