Tuesday, January 22, 2008

Wells Fargo on the Federal Reserve Rate Cuts

Wow! A cut in interest rates from the Federal Reserve in between official meetings! What do you suppose that means?

Here are a few excerpts from an email that I received this morning from Scott Anderson, Senior Economist of Wells Fargo Economics.
  • The Fed is responding to an economy and financial system going into cardiac arrest. This will require emergency room style policy action from the Fed.
  • We now place about a 50 percent probability of an economic recession in the United States within the next 6 months, if not sooner.
  • The reason for the Fed rate cut had more to do with continued deterioration in the U.S. economic outlook, and the potential for further tightening of credit for consumers and businesses.
  • Large money center banks have virtually frozen their balance sheets, reluctant to lend even to good credit.
  • Our current view is that the Fed will cut another 75 basis points by the end of April, bringing the Fed funds target rate to 2.75.

Pretty self explanatory - strap your seat belts on tightly. Turbulence ahead.

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Tags : Wells Fargo , Federal Reserve , credit crunch , interest rates , business loans

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