Fed Cuts Key Rate (16 Dec)

Fed, acknowledges that the recession is more severe than officials previously thought.

The Consumer Price Index (CPI) in October fell to 1.7 percent. There is a higher risk from Deflation than from Inflation. The interest rates are on a record low now due to the Fed's latest rate cut.
The dollar dropped sharply against the euro and other major currencies, a sign that currency markets were nervous about a flood of newly printed dollars. UK Pound falls sharply against Euro, after signs of more rate cuts.
With all the new printed (created) money the currency markets are getting uneasy.

Fed Cuts Key Rate to a Record Low (Permalink NYT)
By EDMUND L. ANDREWS and JACKIE CALMES
Published: December 17, 2008
Having reduced its key rate to a record low, the Fed said that it would use “all available tools” to fight the recession and downward pressure on prices.

Global Interest rate cutting

Asian Banks cut Interest Rates as well (Dec 5 2008)
After the European Banks cutting interest rates, some Asian Banks followed suit. The New Zealand's central bank cut the official interest rate by a record 1.5 percentage points to 5.0 per cent.
The European Central Bank cut its key interest rate by 0.75 percentage points to 2.50 per cent as ECB head Jean-Claude Trichet warned that the eurozone economy could contract by as much as a full1.0 percent next year.
The Scandinavian Central Banks slashed their rates as well, while the Bank of England (BoE) slashed its key rate by a full pertcentage point to 2%, reminding on WWII levels, and the severity of the recession.

Global nervousness all around with the news of the severity of the recession sinking in.
The stock Markets in Asia were up. (05.00 CET). Oil is plummeting.
European Markets expected to open lower. Oil companies losing value.
U.S. Futures flat, economic data (jobs report, unemployment) will be released today. (06.15 CET, Amsterdam)

Interest rate cuts expected before year end

November 3. The current interest rates.
This week the ECB and the Bank of England could cut rates. We expect each of them to cut rates by 50 basis points, ½%, it's a more or less symbolic gesture. It depends very much on the graveness of current economic citcumstances or how central bankers judge the situation, when they do a 1% or more rate cut it means trouble ahead.
FED's chairman Bernanke last week already said, he does not expect very much of further rate cuts, and he has to reckon with the new Obama team. If the economic and financial situation deteriorates further between now and the 16th of December we can expect an other 25 basis points cut from the FED.

Download PDF Beige Book December 3 (Summary of Commentary on Current Economic Conditions by Federal Reserve District)

Fed plans another rate cut before Christmas, probably 0.5 %

Due to the deteriorating retail sales and rising unemployment, Bernake hints at another rate cut before Christmas.
European Central Bank President Jean-Claude Trichet calls the current measures a work in porogress. The Bank of England and the ECB have some room for a 50% basis points rate cut before Christmas. But Bernanke is a a bit running out of steam to manœver, and a 0,25% base rate cut won't help very much.
Are we going to see a repeat of the Bank of Japan scenario, a deflation?

Bernanke leaves door open to another rate cut, warns markets remain under 'severe strain'