Feds Lower Rates 50 Points
Tuesday September 18, 2007
The release is available here. As the Fed puts it:
- The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
- After today’s decision by the Federal Reserve to lower the target fed funds rate 50 basis points to 4.75%, Swiss Re’s Chief US economist, Kurt Karl, commented, “The Federal Reserve Board has taken strong action to alleviate the market turmoil. Since the market was hoping for 50 bp, this is a clear signal that the Fed is willing to provide liquidity and reduce market turbulence. At this time, however, the risk of a recession over the next 12 months is still 35% due to the weak growth, market turmoil and elevated oil prices. Slow growth should lower inflation further, so the Fed should have few concerns about inflation and is expected to continue cutting rates.”
Comments
Cutting interest rates to stimulate the economy never works and cannot work. The stock market jumps temporarily, which gives the illusion that something good is happening.
A growing economy requires a growing supply of money. Economic growth is slowing because money supply growth (the deficit) is slowing.
To stimulate the economy, the government must increase the deficit, which will pump more money into the economy.
Inflation can be prevented by raising interest rates.
If the deficit keeps falling we first will have a recession (as happened at the end of the Clinton administration). and if nothing is done, we’ll have a depression.