Spot Gold Prices leapt alongside US and European stock markets on Friday as the Federal Reserve slashed its discount lending rate to the major banks from 6.25% to 5.75%.
Only a day earlier, William Poole – head of the St.Louis Fed – had said it would take "a calamity" to warrant a cut in Fed interest rates.
In New York, Dow and S&P futures turned strongly higher after pointing to a weak start. The FTSE100 in London, down 4% on Thurs, jumped to almost recover that loss inside 20 minutes.
Overnight, Asian equities had been sold aggressively yet again, with the Nikkei 225 index in Tokyo finishing more than 5.3% lower. The Bombay stock market dropped 4.4%, while South Korea's Kospi index – the world's busiest stock market for traders using borrowed money – dropped another 2.2%. All told, today's losses took Asia-Pacific's drop to more than 10% for the week as a whole.
The Fed's move also whacked the Dollar on the forex markets, pushing the Pound nearly two cents higher for the day to $1.9940 while the Euro jumped above $1.3500 from below $1.3400.
Will the Fed now cut its Fed Funds target, the interest rate more closely linked to home-loan costs and commercial lending? "Upward pressure appears evident in the core US consumer price index," says Marc Chandler, chief currency strategist for Brown Brothers Harriman in New York, "and that must be troubling."
Core CPI excludes volatile food and fuel prices, but it has still been rising at 2.5% annualized for the past three months. "Over the next four months, both the headline and the core rate will rise due to base effects," adds Gabriel Stein, an economist at Lombard Street Research in London.
"Continued domestic and inflationary pressures should stay the Fed's hand for now," Stein believes. But whether the Fed chooses to hold or cut rates, higher inflation will still result in a lower real rate of interest for ordinary savers.
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