The Federal Reserve cut interest rates by 50 basis points to 4.75% at the September 18th meeting. The decision was more aggressive than market had forecasted to favour growth over the danger of a deeper deterioration of the financial conditions. The European currency, in the mean time, could target new historical highs against the U.S. dollar, if technical levels will be respected.

Risk of growth is a priority in the United States
As expected, the Federal Reserve cut interest rates by 50 basis points to 4.75% at the September 18th meeting. The decision was more aggressive than market had forecasted to favour growth over the danger of a deeper deterioration of the financial conditions. Will it succeed? Only time will tell, although the long term interest rates cycle (years) appears to contemplate a high rates scenario. Nonetheless, another rate cut by 25 basis points by the end of 2007 should not be discharged, if the financial conditions will not improve. The Fed still considers inflation a menace, but risk of growth is now a priority. In reality, prices have remains stable at the higher levels of the Fed comfort zone, but they could rise further in the coming months, as crude oil prices are touching historical highs. In August, the Producer Price Index (PPI) declined 1.4%, more than the expected 0.3%. Year over year, prices are now 2.2%, down from July¡¦s 4%. Core prices rose 0.2% (0.1% expected) month over month and 2.2% year over year, below July¡¦s 2.3%. The decline of energy costs, -6.6% versus July¡¦s increase of 2.5%, supported the PPI in August. The Consumer Price Index (CPI) fell instead 0.1% month over month in August, below market expectations, and is now up 2% on year over year basis, down from July¡¦s 2.4%. Core CPI, excluding food and energy, rose 0.2% and it declined to 2.1% year over year, compared to July¡¦s 2.2%.

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

This article contains the following sections:

# Risk of growth is a priority in the United States

# A weak dollar is helping exports

# The European economic momentum still up for now

# The trend is up for the European currency

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