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Time to act fast - but no room for panic
27.10.08
A guessing game over how far and how fast central banks will cut interest rates was under way in the City today.
Where once the concern was over the threat of runaway inflation, the talk is now of recession and how aggressive policymakers can be. The Bank of England faced calls to cut rates by an emergency one percentage point this week to 3.5% and eventually to 2% or even lower.
Former monetary policy committee member Charles Goodhart argues that rates in Britain could fall to zero.
The US Federal Reserve is widely expected to cut rates from 1.5% to 1% on Wednesday although the chances of a deeper cut as early as tomorrow are rising. The Fed will want to strike before figures on Thursday show the economy shrank in the third quarter, possibly by 0.5% or more.
Former MPC member Sushil Wadhwani said: "The time has arrived to deliver positive surprises - it is psychological warfare."
So will the rate cuts be as fast and as far as many observers wish? Probably not. Central banks will not want to do anything so dramatic as to cause panic. They also know they only have a certain amount of firepower, and may not want to use it all at once.
