Fed Cuts Rates Less Than Expected: BMO Economics



    TORONTO, March 18 /CNW/ - With home price declines still roiling the
economy and credit markets, the U.S. recession is poised to deepen further,
according to a commentary by Michael Gregory, Senior Economist, BMO Capital
Markets. Gregory's comments followed the decision by the U.S. Federal Open
Market Committee (FOMC) to reduce the fed funds target rate 75 bps to 2.25 per
cent.
    "The market was leaning a bit more to a full percentage point paring, so
this is a more hawkish outcome than expected," according to Gregory. This less
aggressive approach to easing going forward is signalled on three fronts:

    
    -   Today's move, combined with prior actions to foster liquidity, have
        clearly mitigated some of the downside risks in the Fed's mind.
    -   The Fed's reference to price stability indicates heightened concern
        about stubborn inflation. Previously, actions were directed solely to
        addressing downside risks.
    -   There were two dissenting votes favouring less aggressive action, one
        more than in January's meeting.
    

    "As long as this situation persists, the FOMC will have a bias to cut
rates," said Gregory. "However, the Fed seems to be signalling a more measured
approach to easing for the time being."
    The full commentary can be found on the BMO Capital Markets Economics
website at www.bmocm.com/economics.





For further information:

For further information: Peter Scott, Toronto, PeterE.Scott@bmo.com,
(416) 867-3996, Internet: www.bmo.com


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