Fed saw economy slowing even with 'close call' October 31 rate cut

berikut adalah sedikit ulasan mengenai FOMC minutes kemarin yang terus terang membuat saya sedikit bingung dengan kebijakan the Fed selanjutnya (apakah akan cut, atau hold suku bunga nya)

saya takut untuk menterjemahkannya, karena takut salah dalam menginterpretasikan kedalam bahasa sehari hari, tapi semoga berguna.
berikut ulasannya;


WASHINGTON (Thomson Financial) - The decision for a quarter-point interest rate cut was a 'close call' for many members of the Federal Open Market Committee on October 31, but even with that 'further easing,' they still expected economic growth to slow over the next few quarters.

The FOMC debated the 'relative merits' of a quarter-point reduction in the Fed funds target rate to 4.5 pct versus 'awaiting additional information on prospects for economic activity and inflation' before making a decision, according to the meeting minutes released today.

'On balance, nearly all' of the FOMC members decided the current stance of monetary policy was 'somewhat restrictive,' partly because of tighter credit conditions.

Most of them also saw 'substantial downside risks to the economic outlook' and thought a second rate cut--after the half-point in September -- 'would provide valuable additional insurance against an unexpectedly severe weakening in economic activity.'

The one exception to that 'nearly all' was Kansas City Federal Reserve Bank President Thomas Hoenig who voted for no change. He believed 'inflation risks appeared elevated,' felt that the Fed funds rate, then at 4.75 pct, was 'close to neutral.' The minutes said Hoenig thought monetary policy should be 'slightly firm to better hold inflation in check.'

Despite the FOMC's description of the risks to growth and inflation as balanced in its post-meeting statement, the minutes show somewhat less concern about inflation than about growth.

Core inflation reports had been 'generally favorable,' and the FOMC 'agreed that the recent moderation in core inflation would likely be sustained.' Going forward, they thought inflation would 'edge down over the next few years.'

Nonetheless, the minutes said, 'recent increases in the prices of energy and other commodities, along with the significant decline in the dollar,' were clearly factors that could 'exert upward pressure on prices of some core goods and services.'

Several of the FOMC participants saw 'some relapse in financial conditions' leading up to the meeting. The general view was that markets were 'fragile' and the FOMC was 'concerned that an adverse shock -- such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses -- could further dent investor confidence and significantly increase the downside risks to the economy.'

Hoenig pointed out, according to the minutes, that the Fed could act as needed if new liquidity problems appeared in the financial markets, and 'preferred to wait, watch and be ready to act depending on how events developed.'

Though there was 'scant evidence' of spillover effects from housing into the rest of the economy, Fed members were also worried about 'notable declines' in consumer confidence.

They worried that falling home prices, rising gasoline prices and tighter credit could further sap consumer confidence and cause a bigger pullback in spending.

The FOMC saw the chance of 'significant further weakening in housing activity and home prices.' Tighter credit and a rise in foreclosures could intensify the downward pressure on house prices.

When does the EUR become a problem?

When does the EUR become a problem?

Since the financial turmoil kicked off in July, EUR has climbed around 8% against USD. We anticipate fur-ther gains and reckon that the EUR/USD could break through 1.50 in the next six months. So is the strong EUR becoming a serious problem for European exports and the European economy?

In our view, it is too early to write-off European exports. Although the EUR/USD has been hitting record highs, the trade-weighted EUR has been strengthening much more slowly and it is not yet at especially high levels (see chart). Ultimately, it is currently more appropriate to talk of a weak USD than a strong EUR.
When viewed over the last three to four years as a whole, Euroland’s competitiveness has not actually de-teriorated substantially. One important reason is that wage growth has been relatively subdued, and produc-tivity growth quite strong, not least in Germany.

Finally, the US is becoming less and less important for European trade. Over the last five years, the emerging markets of central and Eastern Europe have been more important for growth in Euroland exports than the US market. And Euroland has become more com-petitive relative to these countries in recent years.
With growing inflationary pressures from oil and commodity prices, we are therefore a long way from the ECB seeing the strong EUR as problematic.

Dollar Falls to Record on China's Plans to Diversify Reserves

Nov. 7 (Bloomberg) -- The dollar slid to record lows against the euro and the Canadian dollar on speculation China's plans to diversify its foreign exchange reserves will involve selling U.S. assets.

The currency slumped after Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing the country should improve the structure of its $1.43 trillion of foreign reserves by favoring stronger currencies. It pared losses after he later added that doesn't mean buying more euros. The dollar also slumped to a 26-year low against the pound and a 23-year low against the Australian dollar.

"Cheng Siwei, a China adviser, apparently said China should diversify into strong currencies,'' said Lee Wai Tuck, a currency strategist at Forecast Singapore Ltd. ``This is one of the comments that triggered the buying of the euro and selling of the dollar.''

The dollar slumped to $1.4666 per euro, the lowest since the 13-nation currency debuted in January 1999, before trading at $1.4615 at 11:31 a.m. in Tokyo from $1.4557 late yesterday. It fell to $1.0975 per Canadian dollar, the lowest since Canada's currency was floated in 1950.