My Two Cents

A Fed Rate Cut?

Chris Farrell Sep 11, 2008

The consensus expectation has been that the Fed will keep its benchmark interest rate steady for now, but that when it does move the central bank will hike its benchmark interest rate, probably from 2% to 2.25%.

But what if the consesnsus is wrong. In the light of the weakness in the economy and the ongoing credit crunch, what if the next move by the Fed is to cut its rate to 1.75%–and at its next meeting?

Yes, inflation remains a public concern of the Fed, but it might get some relief on that front with commodity prices weakening and the global economy slowing.

Inflation is not the problem. The real risk is the the U.S. and the rest of the world economy get locked into a downward spiral.

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