Fed lowers interest rate.

The Fed announced wednesday, that the interest rate would be lowered to 4.5%. After this announcement, the Dow Jones lost a lot of points. Markets started selling after this decision of the Fed, because they believe that this could be the last disrating of the interest.
This already is the second month in a row, that the interest rate is cut. The Fed is doing so, to give the economy some breathing space. Loans get cheaper, so it's easier to invest. The Fed also hopes that a lower interest rate will decrease the negative effects of the housing market on the economy.
The Fed believes that the economy will slow down on the short term, therefore they will keep an eye on inflation.
Basic inflation has weakened this year, but we'll have carefull. Prices of energy and commodities are rising and can result in a growing inflation.
The cut in the interest rate from last wednesday wasn't an unanimous decision. Thomas Hoenig didn't vote in favour... .

It's very strange that markets react by selling, after an interest cut. Normally the regular investments get less attractive and stocks get relatively more attractive. Wednesday the market already expected an interest cut. It actually was the announcement after the decision, which said that the main item for the Fed from now on will be inflation, who caused the selling attitude. If the Fed says that from now on inflation will be the main issue, the Fed imputes that it won't lower interest rates again.
I think it's true that this decision will bring some new investments along. The question remains if this will be enough to stop the cooling of the economy.
The decision wasn't unanimous... . I wouldn't have vote in favour too, the interest cut still caused a shock on the markets. I think it would have been better to wait a month. And then, when it was necessary, they still could have lowered the interest rate.

Thomas

source:http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3335463

Economy doing unexpectedly good.

The American Economy shows unexpected strenght despite the housing and credit market woes. Altought the inflation is staying tame wich make's it uncertain for the FED what to do. The big question is Should the FED cut rates?
The unexpected strength is a sign that the FED shoudn't cut rates, but the tame inflation is a good sign to cut the rates without any fears. The decicion will be announced when the FED concludes its 2 day meeting.
The gross domestic product rose with 3.9% wich is higher then the 3.1% they expected and the 3.8% from last quarter. This is the strongest pase of economic growth since the first quarter of 2006. Export grew 16%, consumption by 3% and prices only rose by 0.8% wich is a big difference from the 2.6% rise last quarter. The readings on both economic growth and price pressures were being closely watched for clues as to what the Fed might do with interest rates. Most economists are forecasting the central bank will trim rates by a quarter-percentage point.

This is good news. After alot of negative reports it finally seems that the american economy is not as weak as it seemed. Now we have to stay sceptic, this is a report by the governement. So we have to wonder if the economy really is recovering or that maybe these numbers are just a way of trying to silence the doubt in the governement. But since we do not have any other information we have no choice but to believe them.
Now I personally think that the FED should cut the rates. Because this could prevent some future problems and its an ideal time to do it because of the tame inflation.

Nico Cottry

Source: http://money.cnn.com/2007/10/31/news/economy/gdp/index.htm?section=money_topstories

Btw: I wrote a blog this week because I forgot to make one last week.

American companies profit from weak dollar.

The weak dollar is giving exporting companies an advantage. Especially the construction business is doing good. The American export is actually rising like never before, in August there was a record of 138.3 billion exported goods and services. The main reason for this bloming export is the low-rated dollar. But the healthy economies of Asia and Europe are helping too, they are importing more American goods. David Huether, head of the ecomical department of the National Association of Manufacturers, says that every sector is profitting from the growing export. The biggest winners are manufacturers of capital goods, like Boeing, telecommunication sector, nutrition sector,... .
Manufacturers of furniture had to move their plants to the cheaper China and Canada in the last years. Canada had the big advantage of her big wood supplies and the cheap Canadian dollar. Now the American furniture sector is looking to move back to its base. There is now more advantage of producing in Canada, last month the Canadian dollar was even worth as much as the American dollar.
Due to this balance Disney even started advertising in Canada, in order to get the Canadians to come to its theme parks. The low dollar is even helping to compensate the trouble in the housing market. But we should be carefull, if the dollar drops to much or to fast, the import will drop too. This will have its effect on foreign economies and eventually also on the American economy. If the dollar drops to much, there will also be inflation problems.

I think the question remains, how far can you lower the dollar. At which point will the import drop? Because it's true that the foreign economies suffer from the low dollar. Especially the 'new' economies, who depend mostly on import. Autartical economies like Europe can rely on their own industry, devolloping countries can't do such a thing.
At the other hand we can't forget that this again proves the economical cycle. America will benefit for a while, until the import drops. Then Europe will suffer from decreasing export. Then again European import will drop and America will suffer from a weak export. And so on.... .


Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3321229