By Anne D. Picker, International Economist,Econoday
Monday, May 7, 2001

Friday's miserable U.S. employment report spurred hopes of larger interest rate cuts by the Federal Reserve (when it meets on May 15) and the Bank of England when it meets on Thursday. Initially, equities markets in Europe, Britain, Canada and the United States sank and the dollar tumbled in response to the report - but not for long. Investors know that the Fed has the fastest gun in the west - they generally respond quickly to bad news and cut interest rates without delay. Meanwhile the ECB, despite signs of weakening confidence and performance, continues to fight inflation, which threatens to rise to 3 percent - one percentage point above their inflation target of 2 percent.

On Tuesday (prior to the U.S. employment report), the Reserve Bank of Australia left its benchmark policy making interest rate at five percent after cutting rates by 125 basis points in three previous meetings. Consumer prices rose faster than expected in the first quarter and a report pointed to a housing market rebound. These indicators, coupled earlier signs the U.S. economy - the second largest market for Australian products - is recovering, probably convinced the bank to hold rates steady.

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