Interest rate watch

Amy Scott Aug 8, 2006
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Interest rate watch

Amy Scott Aug 8, 2006
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TEXT OF STORY

MARK AUSTIN THOMAS: Flip a coin. No one knows for sure what the Fed will do today when it meets. Most analysts seem to think that after 17 rate hikes in a row, the Fed will give it a rest. Hmmmm. Marketplace’s Amy Scott holds this situation up to the light and tells us what she sees.


AMY SCOTT: For more than two years now the Fed has raised interest rates every time it’s met.

The idea was to reign in economic growth and keep prices in check. Many economists say it’s worked. Growth has slowed. The job market is sluggish.

Ian Shepherdson with High Frequency Economics says it’s time to let up on the brakes.

IAN SHEPHERDSON: My concern is that having raised rates 17 times, that the danger is now that perhaps they’ve gone a little bit too far.

Shepherdson expects the Fed to start cutting rates by early next year.

But Lending Tree economist Jim Svinth isn’t sure we’ve seen the last of rate increases. The latest figures show inflation is still a problem.

JIM SVINTH: There’s a real risk of throwing the economy into a full-fledged recession. But I think the Fed is more willing to err on the side of doing that versus letting inflation get to such a point that they can’t get it under control.

Trouble is, it can take months for inflation to respond to interest rates.

So whatever the Fed does today, analysts say we may have to live with higher prices for some time.

In New York, I’m Amy Scott for Marketplace.

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