Archived IMT (2008.09.16)
PRE-FOMC INSIGHTS: A 50-bp rate cut in the Fed funds rate would be the most generous result for risk appetite as far as realistic outcomes are concerned, in which case we could see a rapid and short-lived decline in the yen across the board, a broad dollar decline with the exception of against the yen. The resulting yen decline will only go as far as the duration of the rally in stocks, which will also be partly dependent on whether the Fed would cut the discount rate. Alternatively, the Fed could hold the Fed funds rate steady and cut the discount rate by 50 bps from 2.25% to below the Fed Funds rate at 1.75%. Such an outcome could also be effective in stemming risk aversion, but it is vital to stress that a great deal of this depends on finding capital for AIG.
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