Fed cuts rates to near zero percent

The US Federal Reserve slashed its target for overnight interest rates to a record low of 0-0.25%. In a statement, the Fed stated that it would employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. It said weak economic conditions are likely to warrant exceptionally low levels of Federal funds rate for sometime.
Deflation is not now a major concern, the Fed was expecting a period of deflation. The Fed believes a bigger part of the spreads, the reason why the spreads are actually high is liquidity concerns which is why it feels it is justified in going in and buying these assets right now through this process.

It is a historic decision followed by an historic briefing by the Federal Reserve to explain as clearly as it can why the Fed is doing what it is doing

MACROECONOMIC REVIEW

USA
The effect of the global downturn in the USA has not yet been as significant as expected. US GDP grew by 2.2% during the second quarter compared to 2.5% during first quarter driven by strong exports due to a weak dollar. According to an economist survey conducted by Bloomberg, the US economy grew by an estimated 1.2% during the third quarter as policy measures have been efficient enough to tackle the worst recession scenarios. Although weak growth throughout 2009 is expected, declining commodity prices are stimulating both exports and domestic spending and therefore growth forecasts for 2008 and 2009 have been revised upwards in September.

EUROPE
At the moment it seems that the recession in Europe might become even deeper than in the United States. The annual growth rate in the eurozone fell to 1.4% in the second quarter from 2.4% in first quarter. The United Kingdom is experiencing a particularly severe downswing with growth expected to be negative in 2009 and house prices depreciating at a very fast pace. The macroeconomic indicators around Europe are showing threatening signs: the business climate index fell to a three-year low in Germany, to a five-year-low in France, and to a seven-year low Italy. Mainly because of declining commodity prices, inflation has eased from a peak of 4.0% in July to 3.6% in September supporting domestic consumption. The support is needed as for example in Spain car registrations fell by 32% in September compared to the previous year. EIU‟s growth forecast for 2008 and 2009 are 1.3% and 0.9%, respectively.

ASIA

The global crisis has reached Japan as well. Japanese manufacturers‟ prospects turned pessimistic for the first time in five years and three largest carmakers cut domestic production after exports to the USA had declined 30%. Total exports to the USA fell by 22%. Industrial output dropped by 6.9% compared to last year and 3.5% month-on-month. Although inflation expectations have eased, they are not likely to have an effect on consumption as the unemployment rate has risen to 4.2%. The Asian Development Bank revised its estimate for Asia-wide economic growth in 2009 to 7.2% from an earlier forecast of 7.8%. “You're going to have much more of a slowdown than people previously thought. Because of that slowdown, Asia is not helping compensate for weaknesses in other parts of the world", said Duncan Wooldridge, Chief Asia Economist for UBS.

Forecast data: EIU

Many experts expect the upcoming 12 months to be the worst with some countries falling into recession. According to the IMF, the world economy is entering a major downturn amidst the worst financial crisis since the 1930‟s and expects world growth to slow to 3.0% in 2009 which is 0.9 percentage points lower than forecast in the July.
Following sluggish growth through the remainder of 2008 and early 2009, the anticipated recovery later in 2009 is expected to be gradual as financial conditions are expected to remain difficult. “A pretty sharp adjustment during the course of the next year and then you will see growth resume, but it won‟t be growth at anything like the pace that we experienced over the last five years or so”, said Robin Bew, Chief Economist at the Economist Intelligence Unit. “When we come out of the other side of that I think we need to remember that you will still see a lot of balance sheet impairment in the financial sector particularly, but also in the private sector, particularly in the personal sector. But that doesn‟t mean that people won‟t be able to consume. You will still see consumption rising.” “America, for example, we think 2% growth, maybe 2.25%, far below the sorts of rates of growth that we used to see and that‟s because this balance sheet adjustment is not going to be over in 2010. So yes, a bit of a recovery in 2010, but nothing really to start dancing about. It‟s not going to be like 2005.” The IMF expects a number of factors to contribute to stabilization during 2009:
Commodity prices will stabilize
Housing markets will reach bottom
Emerging markets will provide a source of resilience

These factors would facilitate a return to growth in 2010, but there is still a downside risk in the possible persistence of both the credit crunch and inflation, both limiting the central banks‟ room to maneuver.

Money Man Ben Bernanke

Many of us may not have heard of Ben Bernanke, He is most powerful Financial person in this world, he has decision makig capacity that will effect the whole world, he is the one who has rescued the world from a major recession like that in 1930s. From 2006 he has been the FED chairman,was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System. His predecessor was Alan Greenspan.

His first months as chairman of the Federal Reserve System were marked by difficulties communicating with the media. An advocate of more transparent Fed policy and clearer statements than Greenspan had made, he had to back away from his initial idea of stating clearer inflation goals as such statements tended to affect the stock market.[14] Maria Bartiromo disclosed on CNBC their private conversation on Fed policy (in which Bernanke said investors had misinterpreted his comments as indicating that he was "dovish" on inflation), and he was criticized for making public statements about Fed direction.[15] Presidential candidate and Texas representative Ron Paul, a member of the House Banking Committee - who takes the view that the Federal Reserve System should be abolished and the economy should revert to 'Hard Assets'[16] - has criticized Bernanke for "continually lowering interest rates," which he avers to have caused drastic inflation and unnecessary growth of the money supply, leading to what Paul refers to as the "inflation tax."[17] However, many professional economists argued that failure to have lowered the Fed's target rate would have contributed far more significantly to recession, and urged Bernanke (and the rest of the Federal Open Market Committee) to lower the rate beyond what it had done. For example, Lawrence H. Summers, the Charles Eliot Norton Professor of Economics at Harvard and former Treasury Secretary, wrote in the Financial Times on November 26, 2007 - in a column in which he argued that recession was likely - that "....maintaining demand must be the over-arching macro-economic priority. That means the Federal Reserve System has to get ahead of the curve and recognize - as the market already has - that levels of the Federal Funds rate that were neutral when the financial system was working normally are quite contractionary today."[18]
David Leonhardt of The New York Times wrote, on January 30, 2008, that "Dr. Bernanke's forecasts have been too sunny over the last six months. [On] the other hand, his forecast was a lot better than Wall Street's in mid-2006. Back then, he resisted calls for further interest rate increases because he thought the economy might be weakening. He was dead-on right about that — and the situation would be even worse now if he had listened to his critics then."[19]
On March 16, 2008, JPMorgan Chase announced its intention to acquire Wall Street investment bank Bear Stearns Inc. The proposed purchase is controversial due to the unprecedented involvement of Bernanke's Federal Reserve System. JPMorgan Chase agreed to pay $236 million, but shortly after the deal was announced, the Federal Reserve System confirmed that in a complex package of debt securitization agreements, they were underwriting the deal for around $30 billion.

Why is dollar rising?

Despite US economy ,downturn and the markets are pricing in dramatic interest rate cuts, so why is the US dollar pushing higher? The answer, it seems, lies in broad-based global demand for long-term US government debt. When investors become spooked by risky market conditions (as would be reasonable given recent events), they move their capital from stocks and other higher-risk investments to long-term US Treasury bonds. While these offer very little return, they are considered nearly risk-free. The assumption is that such an investment can only go meaningfully awry if the government itself collapses.
traders are cashing in their investments for US dollars and using them to buy US Treasury Bonds as a safe-haven asset.

Richard has taken Lehman Bros Down

Wall Street analysts believe that it was the 'hubris' of Richard Fuld, the 62-year-old CEO of Lehman, who did not take the telltale signs of impending doom very seriously. Fuld, nicknamed The Gorilla for his foul temper, intimidating presence and tough talk, rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for, and wanted to get more price for the sale of the company
The 4th Largest us IB files for bankrupcy, what next ?