ECB to hold rates again by Angelo Airaghi [Guest Analyst] 5/5/2008

After last week’s decision to cut Fed funds rates by 25 basis points, the Federal Reserve should adopt a “watch and see” position over the next months. Pausing will begin in June, if the economy will not deteriorate further, or at the following meeting. Speculations about a different approach by the Fed should support the U.S. dollar over the short/medium term. Nevertheless, Fed’s work might not be done yet.

As expected, the Federal Reserve cut Fed funds rates by 25 basis points to 2.00% last Wednesday. The Federal Open Market Committee (FOMC) is worried about the state of the economy, as financial markets are in the mid of a storm and credit stays quite tight. Nevertheless, the Federal Reserve should shortly assume a “watch and see” position When? Beginning in June or August will depend on next weeks data. Inflation is moving strongly higher and deserve to be attentively observed. In addition, the effects of the fiscal stimulus decided by the administration to support consumes should become evident in the Summer. It might help to alleviate the state of the U.S. economy, which is clearly declining and might contract further in the coming months. Nonetheless, Fed could cut rates again before year end, if growth will not pick up again.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

This article contains the following sections:

Fed might pause, but the work is not over yet

The job market is weakening

ECB keeping rates steady

Euro/Usd moving lower

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