NEW YORK — The still- cinched credit markets are anticipating a half-point interest-rate cut from the Federal Reserve this week, but investors are worried it won’t be enough to quickly revive the economy.
The central bank has already reduced its key rate — the target federal funds rate — to 1.5 percent. After the Fed meeting Wednesday, the market predicts it will be down to 1 percent — the level it reached in 2001.
“We’re really getting to the end of the rope,” said Kevin Giddis, managing director of fixed income at Morgan Keegan. And, he said, thinking that the upcoming rate cut will turn the economy around in a short period of time “is a bit optimistic.”
Libor, the London Interbank Offered Rate, is the average rate banks charge one other for loans. This rate among U.S. and European banks edged only marginally lower Monday, suggesting credit is a bit looser than it was a few weeks ago but still tight.
The rate on three-month loans in dollars slipped to 3.51 percent from 3.52 percent Friday, and the rate on three-month loans in euros dipped to 4.912 percent from 4.918 percent.
Christopher Rupkey, chief financial economist in Bank of Tokyo-Mitsubishi UFJ’s economic-research group in New York, said he hopes Wednesday’s anticipated rate cut by the Fed will be “the final blow that brings Libor down here. They’re running out of ammunition.”
The Fed began charging a rate of 1.88 percent Monday to buy unsecured commercial paper, plus a 1 percent surcharge, and a rate of 3.88 percent for asset- backed commercial paper.
