Another rate cut expected from Fed

Federal Reserve building

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Kai Ryssdal: Energy prices and the dollar are just a couple of the things the Federal Open Market Committee's talking about.

The FOMC is in the middle of a two-day meeting on interest rates. Chances are good tomorow at this time I'll be telling you the Federal Funds rate was trimmed yet again, despite worries about rising prices.

From Washington, Marketplace's John Dimsdale reports.


John Dimsdale: Tomorrow starts with the Commerce Department's report on Gross Domestic Product for the first three months of the year.

There's plenty of speculation GDP may have been negative, but Bank of America economist Mickey Levy expects GDP grew at or above one percent. That better than expected performance might persuade the Federal Reserve that another interest rate cut isn't necessary, but:

Mickey Levy: The economy will be weaker than the overall GDP number suggests.

Levy says much of the growth in production is actually sitting on inventory shelves because consumers aren't buying.

Levy: Businesses were surprised by the pace of the slowdown in product demand, so you had an inventory build. That adds to production in the first quarter and will point toward a weaker second quarter.

So, like many, Levy figures the Fed will cut interest rates in anticipation of a slower second quarter.

Some economists caution lower interest rates will only feed the inflation consumers are already feeling in food and fuel, but the University of Maryland's Peter Morici says the Fed's not causing inflation.

Peter Morici: Lowering interest rates only drives up prices if the banks make more loans, which creates more consumer demand and you have more dollars chasing fewer goods, but the inflation we're getting right now is from rising oil and other commodity prices, which is being driven by strong growth in China.

Still, many analysts figure the Fed will signal it's done cutting interest rates for a while.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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