Thursday, November 1, 2007

Fed Announces 0.25% Rate Cut

The Fed cut the Fed Funds Rate yesterday by 0.25% to 4.5%, no surprises here. It also announced that further cuts are unlikely, which sounds logical in the market environment we see. Easing the interest rate some more would prompt [even] higher inflation, so the Open Market Committee is probably done cutting for now.

The dollar dropped to a new low against the Euro yesterday, briefly breaking the psychological barrier of $1.45 per Euro. The currency showed some weakness even before the Fed started cutting rates, but since the September meeting it has been trading at record-low rates against the European currency. According to analysts, $1.50 against the Euro is possible in the near term.

… Which may be bad for the prices of imported goods and oil, but has positive effects on domestic product: the Commerce Department said that economic growth was at 3.9% in the third quarter, the highest level in more than a year. The next Fed meeting will be on December 11th.

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