The Fed Stands Pat on Interest Rates
Tuesday August 5, 2008
The Federal Reserve is leaving interest rates unchanged... for now. But it is clear from the release that we should expect to see lower rates in the future:
As always, there is one person on the FOMC an inflation hawk like me can always count on:
Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.Easing of monetary policy? The Fed Funds rate is at 2 percent! How much easier can you get? (I suppose the answer is 200 basis points, but the question is intended to be a rhetorical one).
As always, there is one person on the FOMC an inflation hawk like me can always count on:
Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
Comments
The market seems to love the idea of another cut by the Fed. Sometimes it makes me wonder if my logic is somehow flawed? I thought the Fed was way too drastic when they sliced the rate so aggressively. I am honestly not sure that rate cuts have truly helped, regardless of what the market thinks. One thing is for sure, the last thing that needs to be done is another rate cut. They will destroy the US dollar if they make a move towards further cuts!
This is regarding an article you wrote in economics. There is a mistake in the budget line for this figure:
http://economics.about.com/library/graphics/icurve8.gif
Otherwise, its a very nice article. Nicely explained.