FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• FOMC lowered its target interest rate by 50bp to 1.5% • The move is part of a global joint effort to alleviate financial stress around the world • Fed movement was widely expected by market participants • Fed recent communication and today’s action confirm that downside risks to growth have increased dramatically • Further rate cuts cannot be ruled out if conditions worsen Press Release FOMC Policy Action October 8, 2008 The Federal Open Market Committee has decided to lower its target for

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

We have been literally begging the Federal Reserve, the European Central Bank and the Bank of England to work together to stem the bleed in equities and they have finally done it (What is the Fed Waiting For? And Panic Selling in FX Begs Coordinated Easing). For the first time since Sept 2001, central banks around the world have delivered a coordinated interest rate cut. Coming 2 days before the G7 meeting and 1 day before the ECB interest rate decision, their move sends a strong message to

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The FOMC surprised the markets by taking a preemptive approach in lowering borrowing costs, and cut 50bp to lower the benchmark interest rate to 1.50% from 2.00% early this morning. Furthermore, the ECB, BoE, SNB, and the BoC have also reduced their respective interest rate by 50 points in a coordinated effort to stabilize the market. Indeed, central banks all over the globe have come together to resolve the downturn in the global financial market, and we may see further action by the banks as

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Downside risks to growth have intensified • Members considered to lower rates if conditions worsen • Thus, we expect further rate cuts According to the Minutes, economic indicators reviewed at the meeting showed further deterioration in labor markets. In addition, consumer spending weakened noticeably and residential investment continued to decline. Core inflation eased somewhat in August. The staff revised down its 2009 GDP growth forecast as “the earlier run-up in oil prices, weakened

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview : Last night the Minutes of the FOMC meeting on 16 September were published following shortly after a speech in Washington by Fed. Chairman Bernanke on the economic outlook and financial markets. While the Minutes mostly contained old news, Bernanke’s speech suggested that the level of concern about the growth outlook has intensified since the meeting and that the Fed is now on an easing bias. Details : The Minutes suggest that the outlook was marked down slightly at the 16 September

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Bank of Japan (BoJ) as expected left its leading O/N target rate unchanged at 0.5% in a unanimous decision. The statement on monetary policy was broadly unchanged compared to its September statement. BoJ believes growth will remain sluggish for the time being but will eventually recover as the impact from higher commodity prices abates and the global economy moves out of its current deceleration phase. Not surprisingly, it continues to see considerable downside risk to the economy from the

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview: The ECB left leading interest rates unchanged but is preparing for a rate cut. At the press conference they softened the tone on economic growth and stressed the downward risk to growth stemming from the financial turmoil. They also softened the tone on inflation and dropped their key policy phrase "On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective", indicating that there has been debate on this in the Governing Council.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The European Central Bank President has finally buckled under the weight of bank failures, recessions and slower global growth. Although the ECB left interest rates unchanged at 4.25 percent this morning, Trichet has paved the way for an interest rate cut before the end of the year. This has driven the Euro to the lowest level against the US dollar in more than 12 months and the lowest level against the Japanese Yen in more than 2 years. It is important to realize that this is a dramatic

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview: We expect the ECB to leave rates unchanged but enter a transition phase towards an easing bias. We expect a softer tone as the Council is becoming increasingly nervous about the economic situation. The ECB is facing several of its risk scenarios. The outlook for inflation is increasingly favourable and the output gap is declining. Furthermore the economic outlook is looking increasingly weak - not least due to the ongoing financial crisis. In our view, the ECB is set to respond with

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview: Due to recent comments by members of the Monetary Policy Committee (MPC), growing financial convulsions and a bleak economic outlook, we revise our interest rate forecasts for the Bank of England (BoE). As shown in table 1, we expect the BoE cutting cycle to start in November and to continue with another five cuts into 2009, taking the Bank rate to 3.5%.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

We have changed our interest rate projections for the ECB. We are now looking for the ECB to lower the leading rates by 25 bp in December 2008 and by a further 25 bp in both February and April 2009. Previously we expected the ECB to lower rates by 25 bp in both March and June 2009. We therefore now expect rates to be cut deeper and more rapidly. We also see a risk of a further 25 bp rate cut by June. The precise timing of rate changes is a tricky question, and in these turbulent times timing

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Czech central bank (CNB) today decided to keep its key policy rate unchanged at 3.50% - this was in line with our expectation and consensus forecasts. CNB gave no comment on its decision but is scheduled to hold a news conference at CEST 14.00. Consumer inflation soared over the last year - see chart below - due to rising food and energy prices, an easing of rent regulations, and tax hikes. Latest data show that inflation was 6.4% y/y in August, and we expect it to drop to the central

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

â—� We add a new tool to our inflation-watch instruments for the euro area: a persistence-weighted (PW) measure of core inflation.  â—� Contrary to standard measures of core inflation that strip out the most erratic and volatile components, PW core inflation gives more weight to the items of the HICP basket displaying a higher degree of persistence.  â—� This methodology delivers a core measure that allows capturing the more lasting component of price increases. Therefore, the PW core

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

As widely expected Norges Bank today kept the monetary policy key rate unchanged at 5.75%. Hence, all focus was on the accompanying press release and the press briefing at 14.45 CET. In our view Norges Bank was relatively neutral and very cautious about giving any guidance to the market about future rate changes. Norges Bank is in a ‘wait-and-see’ or neutral stance.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Polish central bank's (NBP) monetary policy council (RPP) decided at its meeting today to leave the key policy rate unchanged at 6% for the third consecutive month. The announcement was no surprise and in line with our and the consensus expectation. The key question at the press conference later today (15:00 CET) will be whether the NBP will signal a hike in October. In our view the RPP is more or less equally split between those members who favour further monetary tightening and those who

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The People’s Bank of China (PBC) announced today that it would cut the one-year benchmark lending rate by 27 basis points from Tuesday (September 16th), while leaving the benchmark deposit interest rate unchanged. In addition, the required reserve ratio (RRR) for small- and medium-sized banks was lowered by 1 percentage point effective on September 25. The RRR will be reduced by 2 percentage points for the same sized banks in areas badly hit by the Sichuan earthquake. However, the RRR for 6

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Bank of Japan (BoJ) this morning as expected left its leading interest rate unchanged at 0.5% in a unanimous decision. The statement was only slightly softer than the August statement. According to BoJ, tensions in the financial market have increased, but its view of the economy is largely unchanged.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Fed Feels There Is Already Enough Stimulus In The Pipeline The Fed left the federal funds rate unchanged at today’s FOMC meeting and altered the policy statement only slightly from the August 5th meeting. The Fed’s move is not entirely surprising in that most economists expected policy to remain on hold. Events in the financial markets had moved the odds of a rate cut to about 50-50 this morning and Wall Street was initially disappointed by today’s move. That said, the Fed’s list of

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

To the surprise of the financial markets, the Federal Reserve left interest rates unchanged at 2 percent. Going into the meeting, everyone thought that the Fed was backed into a corner and would have no choice but to cut interest rates by 25 and possibly even 50bp. Although the tone of the FOMC statement was relatively cautious, the action or more specifically, the lack of action by the Federal Reserve indicates that they are not going to bend to the market's pressure. One of 2 things probably

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Bank of Japan (BoJ) is expected to leave its leading O/N target rate unchanged at 0.5% when it announces its interest rate decision in connection with this week's monetary meeting tomorrow morning. We expect the statement to be soft without hinting at a possible rate cut.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview : Tonight at 20:15 CET the Federal Open Market Committee (FOMC) is set to announce its policy rate decision. Following this weekend's events the market is discounting a 68% probability of a 25bp cut in the Fed funds rate or alternatively a 34% probability of a 50bp rate cut at tonight's meeting. While we attach a positive probability to a rate cut our base scenario remains that the FOMC will leave the Fed funds rate unchanged at 2%. However, the case for an emergency rate cut could

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

We Expect the Fed to Leave the Fed Funds Rate Alone We do not expect the Fed to lower the federal funds rate at tomorrow’s Federal Open Market Committee meeting. At this time the Fed appears more willing to address the current credit and economic difficulties through an expanded discount window and credit facilities rather than a cut in interest rates. In October the Fed may cut the funds rate, but for now we expect the Fed to stay on hold. Financial markets continue to adjust to an

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The People's Bank of China (PBoC) today unexpectedly cut its benchmark lending rate by 27bp to 7.20%. The benchmark deposit rate was left unchanged at 4.14%. In addition, the reserve requirement for smaller banks was cut by 100bp to 16.5%. However, the reserve requirement was left unchanged at 17.5% for the major state-owned commercial banks. The four major state-owned commercial banks have a market share of more than 80% of total domestic bank lending in China.

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

* Base scenario includes a slowdown throughout 2008 and relatively high (although temporary) inflation rates * Members gave equal weight to growing growth and inflation risks * The minutes explicitly mentioned that the Board expects the next interest rate move to be a rate hike. But did not commit to such move anytime soon The minutes for August’ FOMC meeting reinforced the views we expressed in our last Fed Watch. The Fed has purposely stirred from its July’s message, time when it expressed

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview : We expect the ECB to hold rates unchanged and deliver a quite neutral statement with a repeat of the key policy phrase signalling that rates are appropriate currently. There is a chance of a dovish twist, though, as the ECB may - unwillingly - have to acknowledge rising downside risks to growth on the back of the recent very weak numbers out of Euroland - and in particular Germany. We believe the ECB will be careful not to sound too dovish, though, as it does not want to fuel

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Overview : Yesterday evening, the Federal Open Market Committee (FOMC) decided to keep its policy rate unchanged at 2%, as widely expected. Unsurprisingly, one member, Dallas Fed Governor Richard Fisher, voted against the decision, preferring an increase in the fed funds target. The statement saw only minor changes. If anything, it was slightly more balanced, putting growth and inflation concerns on a more equal footing compared to the previous meeting. The general message remains that the

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

â—� The last two ECB meetings have resulted in the largest bond sell-off (June 5) and the largest bond rally (July 3) ever occurred on the day of a regular Governing Council meeting. â—� This has brought the issue of communication back to the fore, ending the two-year long honeymoon between the ECB and the markets and bringing back visions of the bad old times when a disconnect between the central bank and market players seemed to be the rule.  â—� The analysis developed in this paper casts

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Members recognized that risks to growth persisted and that risks to inflation had risen • Less consensus on risk assessments. All members saw rising risks, but some viewed the balance of risks tilted towards inflation. • The Board is managing growing uncertainty about the outlook, thus justifying a “wait and see� policy. One day after Bernanke's testimony in Congress, The Fed released the minutes for last month's FOMC meeting. As it was expected after the hawkish statement that accompanied

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Fed assistance to Fannie and Freddie is temporary, while Congress decides how to proceed • Bernanke indirectly supported Congress proposal to help households facing foreclosure • Rising uncertainty for both future growth and inflation. FOMC will assess incoming information as it becomes available Bernanke testified before Congress amid growing concerns about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Bernanke assured Congress that the

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• The Fed maintained its target rate at 2%. But the statement was hawkish in tone, in line with recent speeches of Board members • FOMC is now more concern with risks to inflation than with risks to the growth outlook • While we expect a pause in its next meeting August 5th, the Fed will not hesitate to act if inflationary pressures increase further or if inflation expectations continue to deteriorate Inflationary Risks continue to rise, while growth drags. The Federal Open Market Committee

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Pressures to both growth and inflation persist • Lower marginal benefits of further rate cuts and higher inflation risk point to a prolonged pause • Fed will keep its options open In its next meeting the FOMC will probably maintain rates at 2%. After pursuing aggressive rate cuts for the last 10 months, we expect this to be the first meeting where the FOMC keeps rates constant, thus suggesting a floor in the current interest rate cycle. The expected pause should not be interpreted as the end

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

Bernanke signaled the Fed intention to end interest rates easing. “For now, policy seems well positioned to promote moderate growth and price stability over time. We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate�. Bernanke remains alert, but feels more confident that financial instability is receding. “The resulting reductions in funding pressures, together with the increased confidence created by the assurance that

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• The minutes showed that expectations for 2008 had deteriorated since the previous meeting. Participants lowered their forecast for GDP growth in 2008 while revising up sharply their outlook for inflation • FOMC members expected a recovery in 2009, but admitted that downside risks to the outlook were significant. Risks to growth were linked to the enduring strains in the credit market, while risks to inflation were mainly associated with changing expectations • As long as their new base

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

The Fed increased liquidity provisions to financial institutions yet again. This measure -- that comes as response to the markets’ pressing request for funding -- underscores the Fed continuing concern with the vulnerability of the financial system. Today’s measures reinforced all three of the Fed innovative instruments to manage the current turmoil: Term Auction Facilities (TAF), Term Securities Lending Facilities (TSFL) and temporary reciprocal currency arrangements with other central banks:

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• The Fed lowered its target rate by 25 basis points to 2%. The statement acknowledged a weakening trend in business spending.  • FOMC appears to be more concern with inflation and inflation expectations • While we do not expect further cuts in their next meeting on June 24th/25th, the Fed left its options open. Growth and Inflationary Risks Are Becoming More Balanced The Federal Open Market Committee announced today a 25 bp cut on its target for the federal funds rate, which now stands

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Additional pressures on inflation • Lower marginal benefits of further rate cuts • However, Fed will keep its options open In its next meeting FOMC will probably reduce rates by 25bp. This move would take rates down to 2% confirming a deceleration in monetary easing that has gone from 75 bp cut in January, to 50bp cut in March, to our expected 25 bp cut at the end of April. Two factors justify this strategy: 1. The inflation theme has reappeared in recent speeches this month. Governor Warsh

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Fed more worried on downside risks to growth • Strains in financial markets continued to pose significant uncertainty to the economic outlook • We expect further monetary policy easing FOMC more pessimistic on economic activity FOMC minutes continued to reflect a more pessimistic view on economic activity and increased downside risks to growth. According to the Fed: • The contraction in homebuilding intensified • Consumer spending appeared to be weakening • Industrial production fell in

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• The Fed lowered its target rate by 75 basis points to 2.25%. The statement continued to stress the downside risks to growth, acknowledging higher uncertainty on the inflation side • The outlook remains fraught with danger, recognizing the deterioration of credit conditions and the overall economy since their last scheduled meeting in January 30th • FOMC was more pessimistic regarding inflation. It recognized that inflation expectations have risen, adding more uncertainty to the inflation

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

• Bernanke indicated that downside risks to growth have increased and conditions in the labor market have softened • Bernanke’s baseline outlook involves a period of sluggish growth in the first half of 2008 • The speech is consistent with our current expectations of a 0-25 bp cut in the next FOMC meeting The Fed Chairman’s speech did not change drastically from his previous intervention in front of the House of Representatives budget committee last month. The market was expecting a more

FXstreet.com: Fundamental: Reports on Interest Rates
FXstreet.com: Reports on Interest Rates. Central Banks rule the world's economy. All about their monetary policy just one click away.

· In a decision anticipated by the market, the FOMC cut the fed funds rate by 50 basis points to 3.0 percent · FOMC members stressed that the uncertainty surrounding the outlook remains, and inflation expecattations seem to be well anchored · Overall, we believe that future rate cuts depend heavily on the pace of economic activity There are considerable downside risks to economic growth and there has been no improvement since the last FOMC scheduled meeting in December. In the press release