PR - Euler Hermes Chief Economist Sees Interest Rate Cuts Into 2008

The effects of three major economic forces, each one enough to damage the U.S. economy by itself, have come together at the same time to create a condition that is contributing to the “demise” of the economy. To counteract the demise, the U.S. Federal Reserve will have to keep cutting the Fed Funds rate into 2008 to mitigate the damage, according to analysis from leading trade credit insurer Euler Hermes ACI.

In his most recent economic analysis, Euler Hermes ACI Chief Economist Daniel C. North said that the three factors – high oil prices, the inverted yield curve of 2006-2007, and the burst housing market bubble – have converged on the U.S. economy at the same time, and their effects are becoming clearer as we continue through the nation’s economic slowdown. “An economy cannot survive all three of these major, damaging factors at the same time and not experience a sharp slowdown,” said North.

The effects of the slowing economy are widespread, causing difficulties for businesses, investors, and consumers alike. This caught the eye of the Federal Open Market Committee, which made the decision in September to cut the Fed Funds rate by 50 basis points. “When the FOMC members examined the state of the economy, they must have seen significant signs of weakness,” said North. “Now, the balance of concern for the Fed has tilted away from inflation and toward growth.”

North is forecasting continued rate cuts for the Fed as the economy continues to be put under pressure from the three serious economic headwinds. “To counteract the demise of the economy, the Fed will have to keep cutting the Fed Funds rate – perhaps lowering it to the 3.5 percent – 3.0 percent range – to mitigate the damage from the three major coincident forces,” he concluded.

Euler Hermes ACI Chief Economist Daniel C. North uses macroeconomic and quantitative analyses to develop, price, and manage Euler Hermes ACI’s risk and insurance portfolios. He earned his MBA from the Wharton School of Business.

A copy of North’s latest economic analysis is available in the Euler Hermes ACI publication Foresight, which is available upon request.

Euler Hermes ACI is North America’s oldest and largest provider of trade credit insurance and accounts receivable management solutions.