"US Federal Reserve System to Keep Rate Unchanged Until Mid 2009" –British Analyst

Business Materials 5 August 2008 14:17 (UTC +04:00)
"US Federal Reserve System to Keep Rate Unchanged Until Mid 2009" –British Analyst

Azerbaijan, Baku, 5 August / Trend corr. A.Badalova / The decision by the United States Federal Reserve System (FRS) regarding the rate will attract the attention of financial markets. FRS kept unchanged the rate (2%) in the recent meeting in June. Analysts believe that FRS will keep the rate unchanged again.

According to the forecasts of the British consulting company on economic researches Capital Economics, FRS's rate will remain unchanged until the mid 2009.

Paul Ashworth, analyst of the British company on the United States, told Trend that the renewed turmoil in financial markets and the weakness of economic activity means that any window that had opened for raising rates is now firmly closed again.

"Admittedly, since the last meeting the actual inflation accelerated to a 17-year high of 5.0% in June. More importantly, however, the outlook for inflation has improved. The price of crude oil has fallen by around $20 a barrel since it peaked in late June," Ashworth said.

The oil prices dropped to lower rate for the late three months. September futures of the American WTI oil cut by $3.69 - to $121.4 per barrel. The cost for September future Brent oil drop by $3.5 - to $120.68 per barrel.

According to the analyst, the recession becomes more severe during the second half of the year. Tighter credit conditions and falling profits suggest that business investment will decline as well. The latest evidence suggests the UK, euro-zone and Japanese economies are all slowing sharply. All of these may soon join the US in recession.

"If the Fed does act again this year, it will be to cut rates further in response to evidence of a more severe recession developing in the second half," Ashworth said.

In September 2007, US Fed cuts rate by seven times from 5.25% to 2% to prevent crisis rate in the mortgage crediting. Last time the rates were cut by 0.25% in April 2008.

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