The Economic Week in Review……

2. November 2007 by Ana Connell.

Lots of news this week…….

The real world has crept back into the picture with more dark news on credit. Credit Suisse reported a big writedown in subprime. But the bigger news was on some analysts reports on Citigroup and Bank of America. The outlook for both of these giants were lowered significantly. The analysts said that they expect Citigroup will have to lower their dividend rate and make other moves totaling $30 billion to shore up capital. Other rumors of interest included: Goldman Sachs imminent announcement of a $20 billion loss, Merrill Lynch imminent announcement of a $10 billion writedown in the 4th quarter on top of the $8.4 billion in the 3rd,Major UK bank announcement of severe losse.  And any number of other imminent announcements of losses by other institutions - that did not happen, at least not yet!

The Fed lowered interest rates…..25 basis points lower on the funds rate, 25 basis points lower on the discount rate! The FOMC cut its benchmark interest rate to 4.5% to cushion the US economy from the housing recession that officials predict will extend into next year. The Fed had this to say: “Today’s action, combined with the policy action taken in September (50 basis point cut), should forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in the financial markets. The committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.”

The Fed is walking a fine line, on the one hand, they have to be concerned about the growing threat to US economic growth going forward. On the other hand, they have to be sure that inflation does not become a problem while the economy grows.

GDP was released, and the number came in at +3.9%, much bigger than the 3.1% forecast.

Core PCE(Personal Consumption Expenditures Index) number rose more than forecast at +1.8%, which points to inflation, for more information on measuring inflation, visit the Federal Reserve Bank of Cleveland.

Oil closed over $95 a barrel.

Gold topped $800, closing at $808 and the dollar set another new all time low this week. The last time we saw gold close to these levels was January of 1980 when it hit close to $875 per ounce!

Unemployment report-The addition of 166,000 workers to payrolls gives the Federal Reserve more reason not to cut interest rates any more. The Labor Department report also showed that the unemployment rate remained at 4.7%.

As far as bond yields, the 2-year closed at 3.68%, the 5-year 3.96%, and the 10-year gains were pared back to 5/32s for a 4.33% close.

Have a great weekend everyone!

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