January 22, 2008
OUR DEPENDENTS:
U.S. Federal Reserve cuts interest rates (The Associated Press, January 22, 2008)
U.S. stock futures seesawed Tuesday after the Federal Reserve, responding to a growing financial market crisis, slashed interest rates 0.75 percentage point.
After all the endless stories about how the rest of the world--especially the EU and China--had matured enough economically that they were independent of the US economy, we still have to come to their rescue. Posted by Orrin Judd at January 22, 2008 8:33 AM
At the last Fed meeting they expressed concern over inflation, now this rather large basis point cut. What gives here?
What happened is that Bernanke (like the rest in academia) doesn't have a book to read about what will happen tomorrow.
That, and the decades-old obsession with the inflation bogey man has left the Fed paralyzed.
Posted by: mike at January 22, 2008 11:21 AMWhat gives here?
The US and world markets gave about 10% since the last meeting, I think.
Posted by: John Thacker at January 22, 2008 11:31 AMLots of considerations affect Fed policy. Their mission is to encourage price stability and foster economic growth. However, they also have to consider the dollar and its recent slide due to sharply lower interest rates. So, the inflation hawks were standing tall until the dismal jobs report in December. That, plus worldwide stock market weakness finally compelled the Fed to act. Also, falling energy prices gave them some room to slide a bit on inflation considerations. They should have done this last week. It would have been received much better. By doing it today, the Fed looks as though it is simply reacting to events, not leading them. However, it is still a good move I believe. We have much more likelihood of disinflation this year than higher inflation.
Posted by: Kurt Brouwer at January 22, 2008 5:51 PMCorrecting for non-existent inflation, coupled with the declining nationa deficit, deprived the world of the safe harbor securities it requires. This is a repeat of Greenspan's 2000 error.
Posted by: oj at January 22, 2008 7:30 PMOddly enough, the dollar has been rising for the past 2 or 3 weeks, even as the markets began to slide a bit more steeply.
Posted by: ratbert at January 22, 2008 10:00 PM