Friday, the Fed illustrated just how close it is to considering a rate cut by lowering the discount rate 50 basis points. Calyon’s Carey suggested that even if a cut in Fed funds does come, it would fail to ease the liquidity problem given that lenders still won’t lend even then. Nevertheless, this hasn’t stopped a chorus of calls from across financial markets for the Fed to stop sticking on rates before an even more serious crisis develops. Andy Chaytor, rates strategist at The Royal bank of Scotland in London, reckons that the longer the Fed waits, the deeper it may have to cut. This week, the Philadelphia Fed and the Empire State surveys showed a disappointing decline in activity at the same time that housing figures suggested that the problems of the subprime mortgage market have much further to run. read more
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