Federal Reserve could make substantial rate cuts

| January 3, 2008 | 0 Comments

Following minutes from their December 11 meeting, the Federal Reserve have said the credit squeeze could result in a situation that will require substantial interest rate cuts.

The Federal Reserve, the US equivalent of the Bank of England, cut rates for the third time to 4.25% on December 11 due to deteriorating credit markets.

However, the minutes said that if financial market conditions improved quickly then rate rises may be required.

Some members noted the risk of an unfavourable feedback loop in which credit market conditions restrained economic growth further, leading to additional tightening of credit, the minutes said.

It added that such an adverse development could require a substantial further easing of policy.

Michael James from Wedbush Morgan in Los Angeles said the stock market is cutting losses as people are interpreting the Federal Reserve minutes as suggesting that there will be additional rate cuts, or other measures to lower rates, sooner rather than later.

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