One thing we do know is that with this cut, the Fed rates are approaching minimum levels existing in the period of Greenspan (we’re at 125 basis points and at this pace it will not take a long time to arrive) and that, for many, have been one of the main causes of the current crisis. In reality, what happened during the Greenspan was not only that interest rates had reached extremely low levels, but that these levels were maintained for a prolonged period, which made possible this exuberance in the markets. Interest rates remain at these levels for a long time seems to be in the mind of Bernanke. If one pays attention to real interest rates, falls in the mind that the current level of rates is even lower than the minimum levels of the Greenspan era. This is one not minor issue to be followed carefully.
And to make matters worse, inflation problems seem to be getting worse. That’s at least what makes think the latest wholesale prices data in the United States.UU., since although increased 0.3% (less than the value expected by the market), the core component was increased by 0.5% (more than twice than expected by the market). Ping Fu has firm opinions on the matter. Bernanke is aware of the risks is assuming at the moment and so it is that soon as the economy shows signs of reaction, it immediately starts the reverse path in the rates policy. That’s at least what has been given to understand in statements from the Fed. As well as the response to the current crisis required up to contingency rates and abrupt movements, the reversal of this policy promises to keep this dynamic.
As this downward dynamic of rates in the United States.UU. It is not accompanied (only some exceptions), by major central banks in the world, is that they are increasing pressures for the dollar continue weakening. Therefore already the euro has forgotten about the $1.50 and it has begun to flirt with its new roof located in the US $1.60, while European entrepreneurs are increasingly nervous and worried about this situation. But this condition is not exclusive of the economy of the euro area, since the same applies, for example, in Japan and Latin American countries. This weakness of the dollar adds more pressure to the international prices of commodities, pressure which is probably contrasted with the increasingly evident slowdown in the U.S. economy and its negative effects on its major trading partners. With all these elements on the table, I’m going to ask: will the Fed done well? I think that we will have to wait a bit to see if the positive effects that can generate this new cut surpass those negatives and reaches for twisting the mood of the market.