November 20, 2008 / 4:25 PM / 10 years ago

BRIEF-JP Morgan: Fed will cut funds rate to zero

CHICAGO, Nov 20 (Reuters) - JP Morgan (JPM.N) now looks for the Federal Open Market Committee to slash the rate to zero by January. Economist Michael Feroli said in a research note:

* “We now look for a 50 bps cut in the target fed funds rate at the Dec 16 meeting, followed by an additional 50 bps cut at the January 28 meeting.”

* “The Fed then continues to conduct a zero interest-rate policy (ZIRP) for the remainder of 2009.”

* “Deflation becomes more likely in an environment where labor market slack is building, and ongoing financial tightening is delaying the prospect that slack begins to get worked down.”

* “Taking the target rate to 0 percent would not be costless for the Fed. One concern that has been voiced in the past relates to the effect on money market mutual funds. We do not think this cost is enough to constrain the Fed.”

* “We don’t believe going to ZIRP implies that the Fed cannot do more.”

Reporting by Ros Krasny; Editing by Jan Paschal

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