US FED CUTS RATES TO LOWEST LEVEL IN RESPONSE TO TROUBLED ECONOMY - America's economy is in big trouble, and that is why its Federal Reserve has cut rates to the lowest level on record to a range from zero to 0.25%, rather than by a fixed amount. The Fed says the US jobs market is getting worse fast; consumer spending, business investment and industrial production are declining; financial markets are strained and credit conditions tight.
Ulster Bank's chief economist Pat McArdle says the Fed's cutting in a range is a very unusual and unexpected move on rates. He says it probably reflects technical issues in administrating operations at this very low level. On any given day, the Fed would deal with a wide range of banks and it probably suits them to have some sort of interest rate recorded. But effectively, the economist says that the US has now cut its interest rates to 0% and is in reality giving away loans for free to the US banking system.
The US Fed also announced several other initiatives to get the economy there back on track. Mr McArdle says that with interest rates now at 0%, the other only thing the Fed can do in pump more money into the US economy and to this end, it is actually printing more money. The Fed also said it will purchase securities, mortgages and anything else it can buy from the banking system. He also said that the Fed would continue to aid the economy for a long time into the future.
Mr McArdle says the Fed is recognising the grim conditions of the US economy - the like of which it has never seen in its 94 year history. He points out that US interest rates have never been so low and the latest jobless figures - which showed that a half a million people lost their jobs in November - is an indication of just how the once mighty US economy is suffering.
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ALL EYES FOCUSED ON OPEC MEETING IN ALGERIA - Global recession pushed the price of a barrel of oil towards $43 overnight, off a high of $147 in July. Oil companies are storing at least 50 million barrels of oil in supertankers at sea - a clear sign of supply outstripping demand as the world economy slows. That is the backdrop to the oil producing countries cartel OPEC's meeting today in Algeria. The 12 OPEC countries pump more than a third of the world's oil, and many have backed Saudi Arabia's call for a cut in production of 2 million barrels a day. It is expected that if OPEC makes that move oil producers outside OPEC will cut production by 600,000 barrels per day.
Bank of Ireland's Paul Harris says that a cut of around 2 million barrels a day would stabilise prices, which is what OPEC is aiming for. He also says that the move could be the first stage in a recovery in prices for the cartel back up to a range of $60-70 a barrel. He says the oversupply problem is a very significant one for OPEC. The October move to cut production did not have any real impact on arresting the decline in prices. He points out that the future prospects for investment and exploration all rely on the sums making sense. At a lower base of prices, it makes it very difficult for people to justify investment in exploration.
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MORNING BRIEFS - An official review has been ordered by the Securities and Exchange Commission, the top US financial regulatory body, into what its chairman has called 'deeply troubling initial findings' concerning the alleged $50 billion fraud by New York financier Bernard Madoff. Since Madoff was arrested last week the number of companies who fear they have lost fortunes grows daily, and now the SEC says that over the last nine years it has been getting 'credible and specific allegations' or warnings about the business. An internal investigation at the SEC has begun into multiple failures at the regulator.
*** On the currency markets the euro is trading at $1.4088 cents and 90.10 pence sterling.
