Finance news

The Bank of France said U.S. Federal Reserve interest-rate cuts this year were deeper than they otherwise would have been because of market declines amplified by new financial products.

An unsigned article in the Paris-based bank's monthly bulletin, published today, said novel products, such as credit- default swaps, exaggerated market moves that can produce “stronger monetary reactions than what would otherwise be necessary, as shown by the recent decision of the Federal Reserve.''

The Bank of France said in a subsequent statement it didn't intend to criticize the Fed reductions and that it was making an “observation'' because the Fed “has recently implemented a strong change in monetary policy.''

By highlighting the Fed's cuts, the article may have underscored the European Central Bank's reluctance to follow its U.S. and U.K. counterparts in cutting rates to cushion against an economic slowdown. The ECB left its benchmark rate at 4 percent this month even as growth prospects deteriorated.

“The Bank of France is simply going along with the ECB line, trying to manage expectations away from any response similar to the Fed,'' said Gareth Claase, an economist at Royal Bank of Scotland Plc in London. “The Fed moved quickly and far. The ECB is likely to move slowly and little.''

Bank of France Governor Christian Noyer, who's also an ECB policy maker, sounded a similar note today. He said there was cause for “some optimism'' about growth in the 15 euro nations.

European Growth

While the impact of a U.S payday loans in 1 hour. slump is unavoidable among “interdependent'' economies, Noyer said in a Paris speech that “dynamic'' employment, manageable consumer debt and a more solid real-estate market helped make Europe's economy more resilient.

The International Monetary Fund sees U.S. growth this year at 1.5 percent and the euro region expanding by 1.6 percent, trailing a global expansion of 4.1 percent.

The Fed has lowered its benchmark rate by 2.25 percentage points since September to 3 percent — including a three-quarter point emergency cut on Jan. 22 — and traders expect another reduction next month.

“Some clients wonder what the point is of the aggressive Fed cuts,'' said Maryse Pogodzinski, a Paris-based economist at JPMorgan Chase & Co. “Banks continue not to lend'' as they “keep having significant liquidity and credit problems.''

German Finance Minister Peer Steinbrueck said Feb. 12 he didn't see ECB Bank President Jean-Claude Trichet preparing markets for a rate cut. At a Feb. 7 press conference, Trichet said uncertainty about growth prospects is “unusually high,'' prompting traders to raise bets on a reduction.

“Pressure on the ECB increased after the massive Fed rate cuts,'' said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The ECB has said that it won't act anytime soon. It doesn't want to be driven by the Fed.''

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