Thursday, December 27, 2007

Pimco's McCulley Says Fed to Cut Rates at Most of 2008 Meetings

By Daniel Kruger

Dec. 27 (Bloomberg) -- The Federal Reserve will reduce interest rates at every policy setting meeting ``for the next two to three quarters,'' Pacific Investment Management Co.'s Paul McCulley said in a note released today to clients.

The central bank will act to ``truncate both the length and the severity'' of a contraction in lending, McCulley said in the note, dated Dec. 21. The Fed will reduce its target rate for overnight loans between banks from 4.25 percent to 3 percent or lower, he wrote.

Policy makers next meet on Jan. 30 and gather again in March, April, June, August and September. McCulley first said the Fed will lower its overnight lending rate between banks to below 3 percent in November. In April, he said the housing ``recession'' would lead the central bank to lower its target.

Interest-rate futures traded on the Chicago Board of Trade show traders see 80 percent odds that the central bank will reduce rates to 4 percent on Jan. 30, compared with 100 percent odds on Dec. 13.

McCulley helps manage more than $700 billion at Newport Beach, California-based Pimco, a unit of Munich-based insurer Allianz SE.

-- Editor: Liedtka

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

Last Updated: December 27, 2007 13:12 EST

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