Fed, ECB rates seen on hold this year despite turmoil
The U.S. Federal Reserve and the European Central Bank will not cut interest rates this year to calm wild markets but may be forced to engineer rescues for more ailing financial institutions, a Reuters poll showed.
The survey of 71 economists was taken on September 17, a day after the Fed swung an $85 billion lifeline to troubled global insurer AIG and soon after the collapse of investment bank Lehman Brothers, showed no move in U.S. rates this year.
It showed the ECB remaining on hold this year, with the consensus backing an earlier than previously expected cut in the first quarter of 2009. Only the Bank of England was expected to cut borrowing costs this year — likely in November.
But the snap survey also showed that 41 of 48 economists say that AIG won’t be the last financial institution to get some form of lifeline as the credit crunch runs through the early stages of its second year.
“Central banks seem to have a preference for the non-monetary policy solution,” said Mark Wall, economist at Deutsche Bank in London low fees payday loan. “The Fed didn’t blink last night despite markets wanting them to cut rates.”
The Fed held the federal funds rate steady at 2.0 percent on Tuesday despite screeching calls from Wall Street beforehand, as stock markets sank, to deliver an aggressive cut.
The poll showed Fed rates on hold until the third quarter of next year when it will raise rates as the economy manages to gain some traction.
The ECB is also forecast to keep up its anti-inflationary stance and offer no cut in its benchmark rate, which it raised to 4.25 percent in July, until the first quarter of next year. A poll on Sept 11 had shown no cut until the second quarter.
Filed under: money by Wolf