Fed Inevitable Rate Cut To Boost Economy And Job Market

As economic problems persist in market despite government efforts to ease crises with bailout packages another step would be necessary. Fed. might have to cut rates by 0.5 to 1 basis points to ease Wall Street desperate moves of selling stocks.

Even Alan Greenspan who ran the Fed for 8 ? years admitted that he made mistakes that may have aggravated the economy's slump.

With economy already at recession level, Fed would have to cut rates to ease economic vows as consumers have cut back sharply. 401(k) s have dropped in value and home values just keep declining. Businesses stopped hiring or slowed down on hiring as well as hard to get financing is contributing to slowdown of economy.

Thousands are losing their jobs at Merck. Thousands more are being cut at Xerox, Yahoo, Chrysler and General Motors. There are so far 27 states in recession and 15 are close.

So far 3/4 of a million jobs have been lost since the beginning of the year and at least 1.5 million to 2 million jobs will be cut. Many expect the unemployment rate, now at 6.1 percent, to hit 7.5 percent or higher by next year.

Only industries that are adding jobs are healthcare, educational services and some defense jobs. Biggest job losses come from financial services and construction.

Credit is known as stabilizer in economic times and there is none. Retail stores such as Mervyn's is going under, Sears is closing stores as well as Circuit City. With holiday shopping season retail stores usually get lift and it I will be unusual to see any retail stores going bust before holiday season is over.

With economic slump Fed policymakers are expected to lower central bank's key interest rate at the conclusion of a two-day meeting Wednesday. In turn, rates on home equity, certain Credit Cards and other floating-rate loans tied to commercial banks' prime rate should drop by a corresponding amount. Fed hopes that lowered interest rates would bring more consumers to shopping spree, thus boosting overall economy.

With lowering rates it would increase the difference the difference between the rate banks charge each other to borrow overnight and the rates they are paid on Treasury securities.

Give the recent financial crises now it is time to re-valuate your portfolio. Moderate investors, who are either closer to retirement or still have substantial time, should invest 40%-70% in stocks and 30% to 60% of their assets in fixed income.

Conservative investors, who, for instance, may already be in retirement, should have generally 20% to 40% in stocks.

Economic turmoil will continue with some time and it is necessary to spread out your investments. Fed would have to lower its rates in other to help economy; however, job slowdown might be there for a while.

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Fed?s Reaction To The Sub Prime Mortgage Situation

It didn?t take long until FED acted and that will in the short term take away some of the stress the market feel regarding the mortgage situation. FED cut the level of interest with 50 points for banks and other players in the financial market. At this stage the market fear that the companies will have there investments costs rapidly increasing cause the revaluation of risks and the last couple of years historically very low spreads on lending. The fact is that the last couple of years the mortgage situation been the same for all companies regardless what the books look like, the last couple of month that been changing and that will only hit companies with weak balance sheet.

The market will probably have some insecurity and volatility will probably be a theme the next couple of month before the market and the global economy completely get into the fact of an environment with higher interests, that move might take some time longer cause the problems in the credit market.

Something of great importance is that FED, Bank of England and others the last couple of years been very independent in there work of protecting the growth and keeping the inflation within stated goals which has been helping the market to sustain in this long period of strong economic growth. This independence will further on be important to increase the possibility for FED and others to act quick and powerful.

What the market hoping for at this stage is that the FED will cut interest at there next meeting to help the mortgage situation not going out of control. At the moment there is difficult to see the consequences of the sub prime mortgage situation world wide, but so far a couple of hedgefunds been closing down and some financial institutions going out of business or are under pressure. Among hedgefunds closing down two Bearn Stearns with a 15 times gearing going under, that fact says more about the great risks investors taking than what problems the sub prime mortgage situation have been causing.

The probability that FED will decrease interest on there next meeting have the last couple of weeks been rapidly increasing but is far from being sure. FED is still focusing on job growth and inflation and there seems to be possible regarding both the weakness of job growth and the low inflation that an increase of interest will come sooner rather than later.

Companies taking a hit the last couple of weeks and still are under pressure are banks and financial institution cause there overall exposure in the mortgage sector. A qualified guess is that there is in that sector there will be a strong move on the upside as soon as the insecurity in the mortgage situation is gone. What to look at is companies within the banking sector is companies with low exposure and risks in the mortgage portfolio and strong balance sheets.

The next couple of weeks will probably be good timing for going long or just taking short positions and taking gain in the volatility the market will provide in the next couple of month.

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