Signs of dissent at the Fed

Yesterday's 25 basis point cut in US interest rates was widely anticipated says Paul Niven, Head of Asset Allocation at F&C, but the jury is still out as to whether the easing cycle has ended.

"The latest cut was priced into the market as such a certainty that the Fed simply could not have disappointed without seriously spooking investors," said Niven.

"However, although the Fed has tried to convince the market that they have done enough for the time being with a 50 basis point cut last month and now this further reduction, the tone of the accompanying statement was far from dovish."

Niven points out that while concern over the US economy has been increasing as the malaise in the housing market has deepened, the Federal Reserve argues that the economy will weather the downturn without falling into recession. However, the statement from the Fed also warned that rising commodity prices could create inflationary pressures.

"Significantly, one member of the Committee voted for 'no change', the first sign of dissent this year. Investors – and the the Fed - will therefore be keenly watching the data to see if the latest dose of medicine has the desired effect," concluded Niven.