Last week, the Institute for Supply Management released the results of its monthly manufacturing survey, which fell to a four-year low. Taken with testimony from bond expert Bill Gross, the picture is now quite bleak. In fact, economists are projecting that the US economy will slip into recession as soon as the first quarter of 2008; Gross believes that the economy is already in recession. As a result, futures markets have already priced in a 75% chance of a 25 basis point rate cut and a 25% chance of a 50 basis point move by the Fed at its next meeting, scheduled for the end of January. As expected, the Dollar is taking a beating in forex markets, as traders price in the effect of the rate cuts, which would create interest rate parity with the EU. DailyFX reports:
The minutes from the last FOMC meeting confirmed that growth is the Fed’s primary concern at the moment. The deterioration in incoming economic data has forced them to lower their growth estimates for 2007 and 2008.
Read More: US Dollar Falls as Traders Consider 50bp Rate Cut for January
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