Monday, October 1, 2007

Will He Or Won't He

I believe this time US federal reserve will not cut interest rates as turmoil in financial markets from US subprime mess has been contained well and all the stock markets are either re-claiming their old heighs or making new heighs. If he does cut the rates then it will pump more dollars into the riskier assets like stocks and commodities, with more weakness in dollar. This will further create inflation among already hyper inflated riskier assets and make them more vulnerable to sudden shocks resulting in huge instability in the credit and financial markets. Thus for the sake of overall health of financial markets, US fed must not cut rates this time around, we already have enough of cheap money roaming around.