One troubling sign (amid a week filled with disconcerting signs) for the markets is the increase in the three-month Libor, or London interbank offered rate, which rose 5.5 basis points to 0.428% on Friday: its highest level since August 17, 2009, Bloomberg News reported.

Experienced investors will recall that the Libor, which serves as a sort of "ATM for banks," rose to a stratospheric high of 3.65% during the financial crisis' acute stage when Lehman Brothers collapsed in the fall of 2008.

Interest rates are the top concern among global financial services firms in the pension risk management business.

According to a new survey by Aon's (AON) human capital arm, 58% of the big players in the pension risk management space cite this factor as the biggest issue facing defined benefit pension plan sponsors from the present to 2013. Longevity risk is next, with 21% of the responses, followed by equity markets at 15% and inflation at 6%.

For the fourth month in a row, Bank of England interest rates will remain at the record low of 0.5%. In an announcement today, the UK's central bank said it would not expand its quantitative easing of financial markets, much to the surprise of the market. The bank has been buying up assets aggressively, printing cash to finance what is likely to be £125 billion in purchases by the end of this month.

Financial markets expected a much different play, involving an increase in this asset purchase target by another £25 billion (to £150 billion). This move would have let the Bank of England shove even more money into the economy through next month, which is when the bank publishes its latest quarterly economic forecast.

With investors awaiting the Fed's interest rate decision, the focus of the decision will be felt in the currency markets. In an AP report: "The Federal Reserve is poised to deliver another interest rate cut to millions of people and businesses this week, although that could be the last break they get for a while."

This scenario may be just what the doctor ordered for the dollar. In anticipation of the announcement, the greenback has staged a minor technical rally, albeit on lackluster volume. If the currency market would get the news that future rate cuts are on hold, the dollar may very well start a recovery.

The reason for the recovery is twofold: Firstly, there is interest rate differential. This has been the major driver in the currency market over the last few years. If the Fed would signal an end to rate cuts, by definition this would mean that the differential would no longer widen. The second reason is economic growth. The US was the first major country in the world to enter this period of lackluster growth and with the steps taken( fiscal stimulus and rate cuts), the right measures were implemented to make sure that the US is the first country to get out of the mess. My hunch is that we will see currency markets move away from the 'interest rate differential trade' to that of one focused more on growth.

As I have mentioned many times, the situation in the Euro-zone is nothing to write home about. Surging inflation, slow growth, the banking sector in turmoil. Sounds familiar. The only difference is that the ECB has done nothing to try and right the ship, while the Fed has. Ultimately, when the US gets back to above-average growth late this year or early '09, the aggressive stance the Fed took will be viewed as the reason for the recovery.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/29/08

I've written quite a lot recently on the China growth story. While fears of wild inflation and bubble-like conditions abound, I've opined that the Chinese Central Bank was doing its fair share to try to rein in such growth.

Enter today's Marketwatch story reporting that China has frozen energy prices in an attempt to curb soaring prices. "Prices of gasoline, natural gas and electricity shall not be adjusted in the near future, and charges for gas, water, heating and public transport in cities shall not be raised," the Chinese government said in a statement.

The article mentions a few factors compelling China to create price ceilings:

• China's inflation rate hit a new 11-year high of 6.9% in November.
• Food price gains are playing a large role in China's fight with inflation. Pork prices, which leaped 56% from a year earlier, combined with meat and poultry prices rising 38.8%, are real drivers of inflation as a wealthier middle class consumes more meat.
• China hiked interest rates in 2007 six times and also increased banks' reserve requirement ratios 10 times.

You can see the announcement in its entirety on the Chinese government's Web site.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

As expected the Federal Reserve announced a few minutes ago that it had indeed decided to cut rates by the expected 25 basis points.

In addition to the interest rate cut, the Fed also stated that inflation growth risks are roughly balanced. The interest rate cut was approved by a 9 to 1 vote.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

In the 1980s, high-yield bonds often yielded 13% to 14%, substantially higher than the 10% to 11% yield called for in the recent pricing of Chrysler's debt.

However, the Chrysler debt might be dramatically more expensive than the higher yields of the 1980s. During the decade of Reaganomics, while inflation was coming down, it was still very high. Real GDP growth of 6% plus inflation of 8% brought nominal GDP to 14%. When compared to high-yield bonds of 13% to 14%, the cost of the debt was not too expensive.

In today's market, with real GDP growth approaching 3% and inflation at 2%, this translates into nominal GDP of 5%. With high-yield bond rates of 11%, it is roughly double nominal GDP growth. That is expensive debt.

This means real interest rates in the high-yield bond market are 8% to 9%, which might be too high for an economy that is more mature and has lower inflation. Many bond investors are saying high-yield rates are correcting back to a normal spread. However, when compared to inflation, real interest rates are very high.

The Fed's goal: get real interest rates lower. The first cut should come in September, followed by at least two more rate cuts by year end.

Jim Cramer, the overly enthusiastic host of "Mad Money," became apoplectic just prior to the market's collapse on Friday afternoon on his CNBC "Stop Trading" spot. Cramer's ranting focused on the need for the Fed to drop rates to save humanity. It came across more that the Fed needed to drop rates to save Jim Cramer's portfolio.

The reality of the situation is if the Fed had to desperately lower rates, gold would be crashing, as was the case in the late 1990s. It is interesting looking back to what everyone was calling the Goldilock's economy then, and seeing that gold was saying otherwise. Gold proved to be correct. Remember that in 1998, oil sold for only $10 a barrel.

Today, the opposite is true: gold has formed a plateau in the $600 price range and oil demand remains strong, with its price approaching $80 per barrel.

All told, despite Cramer's ranting, liquidity is getting a little tighter and the Fed should begin dropping rates in October. I wouldn't worry too much, the sky is not falling despite what Cramer may say.

Abercrombie & Fitch Co (NYSE: ANF), the provider of shopping bags with buff young men with shaved chests, reported a 13% drop in same store sales for the month yesterday. For the first quarter, a little over one month ago, comp sales increased 1%. This is a pretty big swing.

Hollister's comps were also down big, declining 17%. Hollister reported an 8% increase in comps for its 2007 first quarter.

Foot Locker Inc (NYSE: FL), another retailer to fashion-conscious teenagers, also came in with light comps, reporting a 5.1% decline. Investors now have to question whether Motorola Inc's (NYSE: MOT) weak 2007 performance has to do with a saturated wireless handset market or parents cutting back on the financial life support for their teenagers.

Broad-based weakness for apparel retailers follows very weak results for home-improvement retailers and some lightness in Whole Foods Market Inc (NASDAQ: WFMI) and Starbucks Corporation (NASDAQ: SBUX) comps.

Retail data points clearly demonstrate that the Fed's interest-rate increases are doing its job. No matter how compelling a shopping-bag marketing strategy is to drive teenage-girl traffic into stores, at the end of the day, when the Fed wants to cut down on consumption, it is all powerful -- no matter how much complaining a teenage daughter can do.

The Labor Department released its monthly employment report with payroll increasing more than expected and unemployment reaching a 5-month low. Here are the highlights:

• Non-farm payroll increased by 180,000 in March after a 113,000 gain in February. Economists had forecast 135,000.
• Unemployment rate fell to 4.4%, matching October's five-year low. Economists had forecast the jobless rate to edge up to 4.6% in March compared to 4.5% in February.
• Average hourly earnings rose by 6 cents to $17.22 in March, a 0.3% increase from February, matching economists' expectations. In February, hourly earnings gained 0.4%. Over the past year, hourly earnings were up 4%.

Undoubtedly, this is good for the economy. While the housing, manufacturing and business investment sectors continue to be sluggish and drag the economy down, consumer spending helps keep economic growth afloat. More jobs and bigger paychecks help keep those consumer spending dollar flowing into the economy.

Question is, how will the Federal Reserve react to this? Despite the above rosy picture, economists still predict economic growth to slow down to 2% with unemployment rate reaching 5% by the end of the year. Alan Greenspan's recent comments about a possible recession sure aren't helping matters either.

Fed Chairman Ben Bernanke said over and over that he still sees inflation as a risk and aims interest-rate policy to combat it. Moreover, today's employment report won't alleviate inflationary pressures he sees, quite the contrary. The markets recently started expecting rate cuts by the end of this year, but judging from the reaction in the bond market today (yes, that one is open a short day), the expectation is waning.

The parade of economic bad news continued today when a report issued by the Institute for Supply Management showed that factory activity saw its weakest month of growth in three years. The manufacturing index fell to 51.2 in October from 52.9 last month. It was expected to tick up to 53.

Most automakers posted stronger numbers than last year, due largely to increased sales, perhaps spurred on by lower fuel prices. But then again anything would have looked better against October 2005 numbers, which were the ugliest in eight years.

General Motors Corporation (NYSE:GM) October sales were up about 17%, according to the company, on double-digit increases in its truck sales. Ford Motor Company (NYSE:F) said October sales grew 8.1%, making this the second straight positive month in terms of volume for the beleagured automaker.

Chrysler, however, the US unit of DaimlerChrysler AG (NYSE: DCX) saw a 3.2% decline in sales in October.

Analysts expected to see stronger numbers like this, but they question, however, whether they will be enough for Detroit to sell out its inventory of 2006 models. The data from the Big Three U.S. car companies regarding their unsold 2006 will be closely watched today.

Norbert Ore, who oversees the manufacturing survey and also serves as a procurement director at Georgia-Pacific Corp. told the Wall Street Journal (subscription required), "It's an indication that we've peaked and the rate of growth is slowing or will disappear for the short term." Ore also said that wood products, appliances and fabricated metals were among the sectors with the deepest declines in October.

Slowing factory activity is not a big surprise. The first indication of a slowing economy this week was released by the Commerce Department on Monday. Some economists believe that the slowdowns in both the housing and automobile sectors is starting to spread to other parts of the economy. Last Friday, the Commerce department issued a report indicating that the downturn in housing led to the slowest economic growth in the GDP in three years. U.S. constriction continued downward for the fifth straight month.

I'm sure the Fed knew all this when it decided to hold the line on interest rates in its meeting last week.

As expected, the Federal Reserve Board is leaving rates unchanged following their meeting today. The federal funds rate will remain 5.25% until next month's meeting. While many analysts believe this lack of change will continue through the end of the year, some are saying that one more increase will take place in the next few months.

Unfortunately, Ben Bernanke gave no interesting snippets in the press release announcing the results of the Fed meeting, so we'll just have to wait for the juicy stuff I suppose.