More rate cuts on the way, economists say US is in recession, shares fall: Economy roundup

The minutes from the Reserve Bank’s November board meeting show that the bank believed that more significant rate cuts were needed to help stabilise the economy.

Borrowers take heart – the RBA is clearly in the mood to cut rates.

The minutes from the Reserve Bank’s November board meeting show that the bank believed that more significant rate cuts were needed to help stabilise the economy.

“As such, [members] judged that the policy action would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand,” the minutes say.

“This would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses. In addition, given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral position.”

The minutes indicate a fourth consecutive rate cut at the next board meeting on 2 December is likely, as the bank continues to push the official cash rate down to improve consumer confidence.

Meanwhile, it’s the news we’ve all been expecting – a new survey shows that economists believe the US economy has fallen into a recession that will last 14 months.

The Philadelphia Federal Reserve’s new Survey of Professional Forecasters shows the economy contracted in the third quarter, and will contract by a further 2.9% in the fourth quarter.

The survey also shows more than 200,000 workers will become unemployed each month, which will lead to a 7% unemployment level in the first quarter of next year.

Many of those jobs will be culled from banking giant Citibank, which is set to cut 50,000 staff worldwide, leaving the jobs of 2500 Australian Citibank employees at risk.

The group says a year of heavy losses and the downturn is forcing it to reduce its entire workforce worldwide to 30,000. But a spokesperson has not confirmed where the cuts will occur or how many people will be affected.

In other news that will spook investors, the White House has rejected a $US25 billion auto industry bailout package proposed by Senate Democrats. Instead it says the money should be given through government loans appropriated by Congress.

“We’re surprised that Senate Democrats would propose a bailout that fails to require automakers to make the hard decisions needed to restructure and become viable,” White House spokeswoman Dana Perino says.

Back home, Australian markets has opened lower for a second consecutive day. The benchmark S&P/ASX200 index has fallen 51.1 points or 1.4% to 3601.9 at 12.05 AEDT.

But some shares have performed well, with conglomerate Wesfarmers recording a 4.4% rise to $18.36.

Macquarie Group shares have jumped 17.4% to $24.19 despite news the bank posted a net profit of $604 million in the six months to 30 September, down 43% on the previous period thanks to $1.14 billion in writedowns and one-off costs.

The bank has also warned 2009 earnings will come in at just over $1.2 billion – well down from the 2007-08 net profit outcome of $1.8 billion.