Daily Economic Update

Forex Fundamental Analysis Reports

Financial Group Aug 22 07 15:01 GMT
Written by RBC

Financial market stress - not economic fundamentals - to prompt Fed rate cut We have revised our outlook for the Fed funds rate and are now calling for a 50 basis-point rate cut as policymakers work to alleviate liquidity concerns that have emerged in financial markets.
We expect the Fed to cut the Fed funds rate to 4.75% at or before the September 18 meeting, supplemented by other liquidity-enhancing measures, including possible additional changes to the discount rate and the continued injection of temporary reserves, until financing markets stabilize. The Fed is likely to keep the amount of easing limited, however, since the aim of this policy change is to ensure that financing remains accessible rather than to bolster the pace of economic growth.
These Fed measures would limit the extent of any damage to economic activity going forward. Our baseline assessment for growth is that the combination of tight labour markets, an easing in credit conditions and a return to stability in equity markets will limit the downside risk to the economic outlook. While the financial market fallout may curb growth in the second half of 2007, more stimulative monetary policy in the near-term makes us confident in our 2.9% real GDP forecast for 2008. ........Read more.........