Surprise Fed Rate Cut Implications

London, UK - 22nd January 2008, 18:22 GMT

Dear Open ATCA & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

What are the implications of the US Federal Reserve's rate cut to 3.5%, a surprise 75 basis points reduction?

. The Fed's interest move has come as a complete surprise, as it was taken outside its timetabled rate-setting Open Market Committee meetings.

. The last time the Fed cut rates as much as 75 basis points was in August 1982, almost 26 years ago.

. The last two such emergency cuts were on 17 September 2001, shortly after the 9/11 attacks, and on 3 January 2001, in the wake of the dotcom bust.

. The surprise move is widely interpreted as tantamount to a declaration of a state of emergency for the global markets and the US economy.

. Aimed at stopping a US recession, the move has failed to calm investors, with shares continuing to fall sharply as Wall Street opened for trading.

. The US dollar is down against its major counterparts, pressured by expectations of an encore from the Fed in the near future.

. With more rate cuts likely at the Fed's meeting next week US overnight rates could drop by a total of 100 basis points in eight days -- the same magnitude that some economists predicted for all of 2008.

. Will the rate cut prevent global markets and the US economy driving themselves ever deeper into a quagmire?

. Most of the major global financial institutions are warning that either the US economy is already in recession or likely to go into one shortly.

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