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Friday, February 01, 2008

Whither Interest Rates?

As predicted, the Fed cut rates again this week; down by 0.5% to 3%.

The Fed has also stated that there is the possibility of at least one more cut to come.

Meanwhile in the UK, the very cautious and ponderous Bank of England Monetary Committee will be sitting next week and deciding on whether to cut rates and emulate the Americans.

The word on Threadneedle Street is that there will be a cut, but that it will be a meagre 0.25%.

This is of course far too little, and far too late to have any real effect on the UK financial markets. Given that the government has little room for fiscal mobility, now that public sector debt is spiralling out of control, interest rates are seen as the only tool left in the toolkit that can be used to manage the current crisis.

As for the ECB, as already noted, they are not renowned for operating in the real world and it can be taken as a certainty that they will not cut rates anytime soon.

A wasted opportunity by both the Bank of England and the ECB. They both had the chance to operate in unison with the Fed, and actually make a difference to the world economy.

They have blown it!

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