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MARKET COMMENT
By
Carburton Street, London -- Interest rates in the US are now at their lowest level for forty years. The Federal Funds rate for overnight bank loans now stands at 2% and many pundits believe that another rate cut could be on the cards when the Open Market Committee meets again next month. In the UK, the Bank of England's Monetary Policy Committee start their two-day meeting today and another cut in UK rates is expected tomorrow. The European Central Bank will also give its decision on European rates tomorrow. These cuts in interest rates will help debt-laden businesses reduce their cost of borrowing. And for companies that are looking to expand, cheaper loans will allow them to invest in projects that will help to spur growth. Lower rates will also benefit homeowners by reducing their monthly mortgage payments, although they make deposit accounts less attractive. On that note, pension funds could start to re-evaluate their investment policies given that equities now look more attractively priced. Milton Friedman, the influential economist, agrees with the actions taken by Alan Greenspan, the Federal Reserve chairman. Friedman said that the key to avoiding a US recession was to increase the amount of money in circulation. In his estimation, the money supply in the US has increased by 10% since the start of the year. But the underlying premise for any monetary policy is for the market to behave in a rational manner. The theory may well be correct but the one ingredient that is still missing is consumer confidence.