The uniformly sharp downturn in the US economy of late along with the freezing of the credit markets gives the Fed ample ammunition to to slash rates 50 basis points at its meeting at the end of October. The ECB is seen moving in November at the earliest and perhaps December if they use their recent habit of tipping rate moves one month in advance.
I was a strong proponent of a Fed cut in September (to no avail), but an October cut seems like a no-brainer to me with the proviso that they be quick to remove the accommodation once the crisis is past.
I’m sure many of you will comment that earlier cuts have not done the job. True. Granted. But the Fed has a relatively limited toolkit for boosting animal spirits on Main Street even if it can keep Wall Street liquid (a questionable proposition at the moment). They may as well use their blunt instrument now rather than wait until the situation deteriorates further.