Reply #33: Fed to cut rates again, maybe all the way to zero

[UpInArms]

http://www.marketwatch.com/news/story/Bound-zero/story.aspx?guid=%7BCED80127%2DF8AF%2D4809%2DB8C7%2D6CFCC09F455D%7D

WASHINGTON (MarketWatch) -- The Federal Reserve is expected to cut rates again at the end of a two-day policy meeting next Tuesday and could be on the road to zero.

"Our view is that the Fed will continue pulling out all the stops" to fight the downturn, said Jonathan Basile, an economist at Credit Suisse Holdings Inc.

At the moment, the federal funds rate stands at 1%. Since October, the Fed has slashed target lending rates by 50%. That followed a series of earlier rate cuts that brought the funds rate down from 5.25% in September 2007.Video: Starting a business in a tough economy

Economic weakness is now feeding on itself, creating a more severe downturn, and hope that the economy will rebound in the second half of 2009 is quickly fading.

In a key speech on Dec. 1, Fed chief Ben Bernanke promised vigorous action to combat the downturn.

For Fed watchers, "vigorous" action translates into policy actions that include cutting the funds rate to the lowest feasible level and more "nontraditional" steps like buying more debt to lower interest rates and unclog markets.
Analysts believe it means a minimum cut on Dec. 16 of a half-a percentage point to 0.5%.

Economists at the top government dealers agree with the half-point call.
"One has to assume is going to cut rates by 50 basis points. They have been talking about the fact they can do more -- I don't see why they shouldn't," said Bill Cheney, chief economist at John Hancock Financial in Boston. "Anything less will be viewed as inadequate."

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