The Fed's Decision

Robert Hsu, May 05, 2008

Financial markets around the world speculated on whether the Fed was going to cut key interest rates again last week in what may be the final rate cut of this cycle. Because much of the world expected the Fed to halt their interest rate slashing campaign and not cut rates during their Federal Open Market Committee (FOMC) meeting last Wednesday, the U.S. dollar bounced earlier in the week. And in response to this bounce, the prices of gold, oil and agricultural commodities corrected.

But just as I expected, the Fed lowered both the Fed Funds Rate and the Discount Rate by 0.25%. The Fed Funds Rate is now down to only 2%, and three-month T-Bills are yielding 1.28%. The FOMC vote was 8-2, with governors Fisher and Plosser dissenting.

The stock market reacted positively at first to the news with a 1% rally, then sold off and closed the day with a small loss. And commodities and foreign currencies held steady as there is no sign of interest rate hikes any time soon.

Now, there is no indication of what the Fed's next move will be. I expect that we will probably stay at 2% for the Fed Funds Rate for several months, but overall, there is no change in the big picture. Overall market sentiment has improved and we are likely to see momentum growth stocks do well again. Despite the improved outlook for the domestic markets, though, we'll continue to stick with momentum growth stocks profiting from emerging markets since the U.S. economy is still weakening.

To find out the name of this oil play, the reasons behind my recommendation, as well as my specific buy advice, subscribe to Asia Edge today.

Sponsored Links

What's happening in the world's major foreign markets right now? Will current events affect the stocks in your portfolio? Read InvestorPlace Asia's Top Stories to find out everything you need to know in order to stay on top of global economic news.

more...

Every country has its own special customs and traditions. Being familiar with a country's culture can often make a difference in whether you gain or lose from investing in its stock market. Check out our culture section to learn more about the societies of the world's fastest-growing emerging economies.

more...

There's a lot happening around the world today, and it's important to know how it's affecting your investments. Watch the latest videos covering important Asia topics!

more...