Fallout: The Financial Crisis

Economists split on what Fed will do

Marketplace Staff Sep 16, 2008
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Fallout: The Financial Crisis

Economists split on what Fed will do

Marketplace Staff Sep 16, 2008
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TEXT OF STORY

Scott Jagow: The Federal Reserve is surely in crisis management mode. This morning, it poured another $50 billion into the financial system. And there’s a chance the Fed will cut interest rates this afternoon, which was not supposed to happen. Here’s Jeremy Hobson.


Jeremy Hobson: Fears about inflation have kept the Federal Funds rate steady at 2 percent since April. But some economists think the last 48 hours may be enough to sway the Federal Open Market Committee to cut the rate by 25 basis points, or a quarter percent. Morris Davis is a former Fed economist who now teaches at the University of Wisconsin.

Morris Davis: It’s just not clear what the Fed’s gonna do. I suspect we’ll see 25, but I’m gonna guess that there are gonna be some members of the FOMC that are gonna say we should do nothing.

Doing nothing is what John Silvia expects.

John Silvia: Oh, I’ve been around long enough to see mornings like this before.

Silvia is Chief Economist at Wachovia.

Silvia: The Fed has to keep open that possibility that if you look at the second half of this year we easily could get negative GDP growth.

If things do continue to deteriorate, Silvia says the Fed may well cut the rate at or before its next meeting in October.

In New York, I’m Jeremy Hobson for Marketplace.

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