Monday, November 26, 2007

Merrill predicts 2% Fed funds rate, dismal economic outlook

Here's a little day brightener we didn't want to post before the holiday.
From Financial Week:

The Federal Reserve will slash its target rate for overnight loans to 2% by the end of the second quarter of 2009, Merrill Lynch economists predict in a new report.

“For much of this past year, we thought the Fed would be cutting rates faster and deeper than the markets were anticipating in response to the dramatic unwind of the housing and credit bubbles,” Merrill’s David Rosenberg and four colleagues wrote in the report.

The economists said in the report that they did not believe inflation would stand in the way of rate cuts.

“Although commodity input costs will remain a problem for corporate America’s business bottom line, we expect that inflation strains will be mild to non-existent since the slack in the economy and a rising unemployment rate will prevent cost pass-through,” they said.

Commodity and energy costs will weigh heavily on corporate profitability, the economists said. Merrill is forecasting that S&P operating earnings will grow 4% in 2007, decline 2.4% in 2008 and rise 2.3% in 2009....MORE