U.S. stocks rose for the first time in three days as investors speculated the Federal Reserve will lower interest rates after unemployment surged, General Motors Corp. warned it’s running short on cash and pending home sales dropped. Interest-rate futures on Friday showed a 99% chance the Fed will cut its target rate by 50 basis points.
The gains were more than halved in the final hour of trading after Barack Obama said there is no quick fix for the economy.
The Federal Reserve can operate with zero interest rates if it has to and the U.S. recession will get worse before recovering in the second half of next year, a top Fed policy-maker said on Friday.
"Now is not a time to be tentative," Atlanta Fed President Dennis Lockhart told a business luncheon.
"In theory, we could go to zero (interest rates)," he said in response to a question from the audience. "You can operate monetary policy at zero by injecting liquidity into the system and in effect separating the interest rate from the liquidity measures that you've picked, so that's a possibility."
Interest rate futures currently imply another half point cut to 0.50 percent in the Fed's benchmark overnight funds rate at its next scheduled policy meeting on Dec. 16.
Interest rate futures were also reflecting concern following very gloomy jobs data on Friday that showed U.S. unemployment jumped to a 14 year high of 6.5 percent in October from 6.1 percent in September. Lockhart warned this trend would continue in the months ahead.
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