Wednesday, April 30, 2008

The Fed strikes again.....

The Fed as expected lower the Fed funds and discount rates both by 25bp today. This was widely expected. There were two members who were against the move. These two members wanted no change. This, to me, is the direction the Fed is going. No more rate cuts. If credit tightens more, I believe they will take steps to provide funding, similar to what they did a few weeks ago when providing funds via the discount window to Investment houses. Inflation is a major concern,not only in the States but worldwide. I believe that the next move in rates will be up, and not that far in the future (6mth or so). Inflation can not and will not be allowed to get out of control.

Today S&P raised Brazil to investment grade. This is a very big deal and one that has been expected for a while. Being investment grade allows funds to purchase Brazilian debt and place it in their portfolio's. This will lead to ALOT more purchasing of Brazilian debt going forward. This reminds me a lot of the Asian crisis a few years ago. Every time a country was taken off investment grade forced selling of debt and securities ensued. Now a similar situation will happen in reverse. I would assume at a slower pace but still occur.

Good luck and Good Forex Trading



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