Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. What Now?Hongkong and Singapore Bankcorp (HSBC) post-employment report policy outlook from Across the CurveNot for the faint of heart. More from HSBC On Fed and Economy December 5th, 2008 11:00 am US Economy - Change of forecasts; cutting growth and inflation; zero funds rate now expected on 16 December Please open the attachment to view the full document 5 December 2008 * Timing of zero Fed funds call now 16 December, was 2009 Q2 * 2009 GDP growth forecast cut to -0.7% from +0.2% * Core PCE inflation 2009 forecast cut to 1% from 1.3%, 2010 cut to 0.7% from 1.6% * 10-year Treasury rate target cut to 2.0% from 2.9% POLICY FIREWORKS SET TO INTENSIFY Fed Chairman Bernanke has signalled that unconventional policy options, including aggressive quantitative easing and yield curve manipulation, is about to intensify, and as such, we now expect the Fed to cut the Fed funds rate to zero percent at the 16 December meeting, giving it a freer hand to conduct aggressive balance sheet expansion. If we are right, the December statement may also signal that the Fed is prepared to keep short rates down for a considerable period. If we are wrong and the Fed cuts 50bp or 75bp instead, we then would still expect the funds rate to be cut to zero on 28 January 2009. Based on our forecast of an 8.8% unemployment rate by 2010 (up from 8.0% previously), we think the Fed will not have to raise rates until 2011 at the earliest. This, together with the Fed making aggressive purchases of Treasuries and mortgage backed securities at the long end, is likely to drive 10-year Treasury note yields to 2.0%, eventually taking the 30-year mortgage rate to about 4.0%. Generally, we have taken an axe (yet again) to our economic forecasts (see table). GDP is expected to decline 5% annualized in Q4 (was -3%), -2.2% in Q1 (was -0.8%), before recovering back into positive territory from the second quarter, as we assume a USD600bn Obama fiscal package begins to hit the economy. We don't know exactly how big the stimulus will be, but we know it will be large; probably USD600bn and some have talked about as much as a USD1trn package Labels: bailout, financial crisis, US economy, US employment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). View from UK: US Joins UK on Recession BrinkI don't know which specific government figures the authors are referring to.From today's Observer: America joins UK on brink of recession Fed expected to lower interest rates to 1 per cent Heather Stewart and Richard Wachman The Observer, Sunday October 26 2008 Federal reserve chairman Ben Bernanke is poised to slash American interest rates to just 1 per cent this week, the lowest level since the depths of the dotcom crash, as government figures reveal the US has joined Britain on the cusp of recession. World investors were focused on Britain last week after Bank of England governor Mervyn King and Prime Minister Gordon Brown confirmed recession was looming, and it emerged that the economy had shrunk by a worse-than-expected 0.5 per cent in the third quarter of the year. But all eyes will now turn to the US, as the Fed meets to set borrowing costs and government figures reveal the full scale of the deterioration in the economy over the past three months. Read the rest of the article Labels: Ben Bernanke, financial crisis, The Observer, US economy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
