Vice-chairman and chief investment officer for global equities Bob Doll says the Fed does not want its actions to be construed as “bailing out” those who made risky investments however.
He says: “Against a background of weakening economic activity and moderating inflation, we believe the central bank is likely to cut rates by 25 basis points and to provide a statement that points toward a bias of further easing. Time will tell whether that will be enough to calm financial markets.”
Doll adds that the severity of the credit market turmoil has been unprecedented, and there is evidence that it has begun to weigh on the U.S. economy, as seen in the recent weakening of the jobs market.
He says: “The credit crisis and the associated disruptions in financial markets appear to be part of a mid-cycle economic slowdown, which has not yet ended. We expect that credit woes will continue and that recessionary fears will intensify over the next several months. However, we also believe that economic growth will trend higher as the credit issues eventually ease, and our bet is that the shift in Fed policy will go a long way toward making that happen.
“While stocks are likely to remain volatile, the bull market, in our opinion, remains intact.”