Asian stocks rebounded on Wednesday after the Fed slashed interest rates by 75bp on Tuesday – and hinted clearly at more cuts to come – in a bid to arrest the deterioration in the US economy and stem a wave of selling in world stock markets. The move down to 3.5% was the first unscheduled Fed rate cut since Sept 17 2001, and its largest single cut since August 1982. The central bank’s gambit drove a rebound in European stocks on Tuesday but did not prevent US markets from closing lower. The Fed had been planning a sharp rate cut at its scheduled Jan 30 meeting, but deteriorating market conditions convinced Fed officials they could not afford to wait another nine days. In the UK, Bank of England governor Mervyn King prepared the ground for another modest rate cut, warning in a speech that the UK economy faced its greatest challenges in a decade but ruling out dramatic cuts of the kind made by the Fed. Lex says that given the wave of bad economic data, the Fed will probably slash rates by another half point next week. But it has now “fired its big cannon, and as its armoury becomes depleted, the financial instability will continue”.

This entry was posted by Gwen Robinson on Wednesday, January 23rd, 2008 at 5:50 and is filed under Capital markets. Tagged with federal reserve. Edit this entry.