Cuckee.com

There are many arguments which support the Fed to cut the financial rates and on Sept 18 their arguments saw the end of the tunnel. The Fed had reduced the fin rates by 50 bps.

So here is how the argument goes for a Fed rate cut:

• The world credit finance system is in need of support

An immediate rate cut would infuse cash into the credit finance system thereby allowing it to function smoothly. The global credit finance system virtually came to a halt when most of the financial lenders were wary of buying short term financial instruments like commercial paper because they were not pretty sure of what was being offered as collateral to their financial lending.

• Problems in real estate might spread into the economy

A lower rate would enable investors to purchase houses at prices what the market forces expect. These in turn would induce buying of ancillary products related to the housing sector and create an atmosphere of increased money movement. The resultant cash flows will help the economy to grow.

• A slow down in the economy

The broader economy is reeling under the pressure of the sub prime saga as well as that of the automobile sector. The local manufacturers are under a great pressure from the Japanese counterparts and the margins are constantly heading south. The gas prices on the other hand are increasing on a daily basis leaving the consumer with no space to breathe.

• The financial houses need time to look in their back

Globally the financial lenders sold smartly packaged securities to investors and made trillions out of it. The problem is that these lenders themselves don’t know if the mortgages used to back up the securities are worth their salt or not. What if the loans go bad? Will the back up mortgaged stand good? An interest cut will give such lenders time to set their finances in order.