Not all Economists think the Fed Should Lower Rates
December 06, 2007
The Bank of England lowered its key interest rate by a quarter-point to 5.50 percent today marking their first rate cut in more than two years. The Bank of England stated that "Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow." Inflation in England has edged over the targeted 2.00% range, but the central bank has turned its focus on resurrecting a sagging housing market and attempting to prevent an economic slowdown.
Sound familiar? This should be about the same story we hear next week in the United States when the Federal Reserve meets and is likely to lower rates. The only difference is that the Bank of England lowered their rate to 5.50%, while our key interest rate is already down to 4.75%. Wall Street will love the rate cut and the American consumer will be cheerful with the lower credit card rates and home equity loan rates which will surely follow, but there can be a downside to cutting rates too aggresively. Many economists including author Jim Rogers have pointed to the weakening dollar and price of oil as serious risk to runaway inflation. Their view is that the business cycle needs periods of downturn to regenerate and a short recession may be less painful than a long protracted period of high oil prices, a weak dollar, and serious inflation.
Jeremy
16 February 2010 at 1:54 pm
The US will not be far behind Britain in inflation. You can't keep printing money and borrowing money and not expect inflation to occcur. No solutions from Washington, as they are opposed ideologically, to doing what is needed, which is broad-based business tax cuts.