Federal Reserve

May 18, 2020

The situation clearly does not show improvement signs, but quite the opposite and it causes that they increased the expectations of the market about an advance cut of rates on the part of the EDF. Who would have imagined a few months ago an action sudden of the EDF as it were that one cut of rates? How it is possible that to little more of a month of that one event, the market hopes that the EDF returns to repeat it in a context where the rate is located in 3% and the inflationary pressures continue latent? The certain thing is that this expectation is concrete. For Tim Smalls, head of operations of Execution LLC: " There are some rumors in the market about that the EDF could realise a cut of emergencia". Same vision also has the analysts of Goldman Sachs. Beyond which an anticipated intervention of the EDF takes place, the market hopes that Bernanke has very well sharpened the scissors since the forecasts, until now, granted a 96% of probabilities to that the Federal Reserve trimmed next the 18 of March types of interest in 75 basic points, to take to the rates to 2.25%.

It even exists in the expectations of the market, a 22% of probabilities that this cut is of 100 basic points. But Why is occurring this situation of stress in the financial markets? For the EDF this situation responds to certain fears on the quality of the loans, mainly the hypothecating ones, to the shortage of capital within the financial system and to the increase of the liquidity risk. Yesterday the fears on an insufficiency in the access to the capital, struck hard to the actions of Bear Stearns Co (NYSE: BSC), that fell a 11%. Certainly these three factors act feeding back itself and cause that the financial organizations are very not arranged to grant new loans by the pressures that they have on his balance and to look for to become of greater liquidity.

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