Inflation worries were thrown aside as interest rates were cut on Wednesday in a synchronized multi-country response to try to stabilize world financial markets and ease out of the global credit crunch.
Less than a day after Fed chairman Ben Bernanke hinted a rate cut could be in the works, an unscheduled emergency announcement was made by the Federal Open Market Committee (FOMC) to lower its target for the benchmark federal funds rate 50 basis points to 1-1/2 percent. In a coordinated effort, the European Central Bank, China, Britain, Canada, Sweden and Switzerland also cut rates.
The following was released in a joint statement by the central banks:
Continue reading US Federal Reserve and world central banks cut interest rates
Federal Reserve chairman Ben Bernanke signaled Tuesday that a cut in interest rates may turn into a reality as a result of the current economic landscape and a better inflation outlook.
“The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,” Bernanke said at the National Association for Business Economics Annual Meeting in Washington.
“At the same time, the outlook for inflation has improved somewhat, though it remains uncertain. In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate."
Continue reading Fed chief hints at rate cuts, and notes better inflation outlook
That latest Federal Reserve minutes taken during the Fed’s August 5th meeting where they held interest rates steady indicates a concern over greater inflation risks into next year.
The Fed warned against inflation in their statement, but the minutes released Tuesday, August 25, better highlights the extent of their growing worry:
"Participants expressed significant concerns about the upside risks to inflation, especially the risk that persistently high headline inflation could result in an unmooring of long-run inflation expectations. Some viewed the upside risks to inflation as having diminished modestly over the intermeeting period, mainly as a result of the drop in the prices of oil and some other commodities as well as the greater likelihood of persistent economic slack.
However, others viewed these risks as having increased, particularly in light of continued elevated readings on headline inflation, the low level of the real federal funds rate, anecdotal information suggesting that firms were having more success in passing higher costs on to their customers, and some signs of an upward drift over recent months in investors’ expectations and uncertainty regarding inflation over the longer run; moreover, the recent decline in energy prices might well be reversed in coming months.
Continue reading Latest Fed minutes show concern over inflation
Federal Reserve Chairman Ben Bernanke said inflation was on track to ease later this year and next. Bernanke made the comments Friday at an economic conference before leading economists and policymakers in Jackson Hole, Wyoming.
Decreasing commodity prices, increased stability of the dollar, and slower growth were cited reasons for the improved outlook.
"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year," Bernanke said.
Continue reading Fed chief Bernanke forecasts moderate inflation
Fed Chairman Ben Bernanke spoke before an annual economic conference in Jackson Hole, Wyoming on August 22, 2008. He touched on several economic items, but his soothing inflation message stood out most noticeably.
Bernanke forecasted moderate inflation, provisioned on commodity prices, growth and dollar stability factors.
The following is the prepared text of his speech, as provided by the Federal Reserve website.
Reducing Systemic Risk
In choosing the topic for this year’s symposium–maintaining stability in a changing financial system–the Federal Reserve Bank of Kansas City staff is, once again, right on target. Continue reading Federal Reserve Chairman Ben Bernanke’s speech on Aug. 22, 2008