Chief Economist: Fed Could Cut Interest Rates By Fall
Following the May 9 decision of the U.S. Federal Reserve to leave interest rates unchanged, Euler Hermes ACI Chief Economist Daniel C. North issued a commentary in which he forecasts that the Fed may lower interest rates by the fall.
(PRWEB) May 14, 2007 -- Following the May 9 decision of the U.S. Federal Reserve to leave interest rates unchanged, Euler Hermes ACI Chief Economist Daniel C. North issued the following commentary:
"As expected yesterday, The Federal Reserve held the Fed Funds interest rate steady at 5.25%. In the statement accompanying the action, the Fed cited both economic growth and inflation as concerns. The statement noted that "Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing" but it also stated that "Core inflation remains somewhat elevated … (and) the high level of resource utilization has the potential to sustain…" inflationary pressures.
Despite concerns over both factors, the Fed's bias towards fighting inflation remained unchanged, saying that the "…predominant policy concern remains … inflation." The fact that several inflation indicators remain at "elevated" levels certainly contributes to this bias. Perhaps most importantly, the Personal Consumption Expenditures (PCE) core rate still remains above 2%, which is thought to be about the Fed's highest tolerable rate on its most carefully watched gauge.
But inflation concerns may be abating. The Fed must certainly have been happy to see the most recent reading of the PCE core was 2.1% in March, as opposed to the 2.4% rate it displayed in February. In addition, critical Unit Labor Costs, which measure wages after taking into account productivity, fell to a 1.3% year over year growth rate in the first quarter of 2007 versus 3.4% in the fourth quarter of 2006. Since inflation in labor costs is more influential than in materials costs, this was welcome news indeed.
Furthermore, the Fed's reliance on a slowing economy to "moderate" inflationary pressures seems to be coming to fruition. First quarter GDP growth was an anemic 1.3%, the slowest in four years. The latest employment report showed only 88,000 jobs created in April, the lowest in two and one half years. The second lowest during that period was just in February at 90,000 jobs. The unprecedented demise of the housing market no doubt is helping curb the consumer; April same-store sales at major retailers fell well below expectations. The Treasury yield curve is still inverted and has been since last July, a historically strong indicator of a slowing economy. Given the weakness in the economy, the Fed may only have to wait until the fall to shift its bias towards growth and start cutting rates."
Euler Hermes ACI is the leading provider of trade credit insurance and accounts receivable management solutions. Chief Economist Daniel C. North has been using macroeconomic and quantitative analyses to help develop, price, and manage the company's risk portfolio of more than $150 billion in annual U.S. trade transactions. He has written and presented macroeconomic forecasts on behalf of the Credit Research Foundation and provides regular commentary on the National Association of Credit Management's monthly Credit Manager's Index. North has an MBA from the Wharton School of Business.
Euler Hermes ACI is North America's oldest and largest provider of trade credit insurance and accounts receivable management solutions and is the US subsidiary of the Euler Hermes Group. Headquartered in Owings Mills, MD, the company protects and insures more than $150 billion in US trade transactions annually. Additionally, Euler Hermes ACI provides a suite of receivables management services that includes commercial third party collections, receivables management outsourcing, and international collections. For more information, visit www.eulerhermes.com/usa.
Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,500 employees in 49 countries, Euler Hermes offers a complete range of services for the management of customer receivables and posted a consolidated turnover of 2.01 billion euros in 2006.
Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor's rates the group and its principal credit insurance subsidiaries AA-.
Press Contact:
Rick Ostopowicz
Euler Hermes ACI Public Relations and Communications Specialist
Phone: (410) 753-0652
Email: rick.ostopowicz @ eulerhermes.com
These assessments are, as always, subject to the disclaimer provided below.
Cautionary Note Regarding Forward-Looking Statements: Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words 'may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue' and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz SE's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The matters discussed herein may also involve risks and uncertainties described from time to time in Allianz SE's filings with the U.S. Securities and Exchange Commission. The Group assumes no obligation to update any forward-looking information contained herein.
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