TEXT OF INTERVIEW
SCOTT JAGOW: Last week, the Federal Reserve left short-term interest rates untouched once again. The rate’s been at 5.25 percent for almost a year now. A lot of people on Wall Street are hoping the Fed will cut rates sometime this year, but Newsweek’s Allan Sloan is skeptical.
ALLAN SLOAN: Well interest rates to me are much lower than they should be, which is OK with me because I’m not complaining, but short-term rates are I think extremely low. Long-term rates are even lower than short-term rates and what that does is it makes it much easier for these buyout guys to do buyouts, which has been a big factor in the market.
JAGOW: Why have interest rates stayed so low?
SLOAN: I think the long-term interest rates have stayed so low because there’s a ton of foreign money that is coming into the United States looking for investments and in some cases looking for havens outside of its own country. And you’ve got on the domestic front, the short-term rate you’ve got the Fed which is sitting around, for the life of me I don’t understand this, talking about possibly cutting interest rates at the same time that short-term rates in Europe, which when last heard has a currency called the euro, you heard of that?
SLOAN: Short-term rates are about to go up in Europe and you sort of wonder whether or we’ll have to raise short-term rates here just to protect the currency. It could be I’m on a different planet, but I suspect interest rates to rise. I mean maybe not to the moon, but I expect interest rates to go up. But then again I’m only an English major who writes a business column.
JAGOW: Well I guess the thing that’s been keeping a lid on it is that inflation hasn’t really shown signs of flaring up.
SLOAN: Well that’s again if you believe that interest rates are determined by inflation, which again rational people believe. It depends how you measure inflation. When the Fed now measures inflation, it doesn’t count food and fuel, OK, because that’s not part of the core inflation rate. So by their measure of inflation, inflation is I guess relatively tame. By the measure of inflation that most human beings live with, I’m not so sure it’s tame. But as I said, no one has invited me to sit as a governor on the Federal Reserve board and being polite and having to wear a suit all day might really cramp my style so it’s just as well I haven’t been invited.
JAGOW: Alright Allan, thanks a lot
SLOAN: Take care Scott.
JAGOW: Allan Sloan, the Wall Street editor at Newsweek.
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