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
Although the Labor Department’s last report indicated an easing of inflation to 5.4% and a research group said on Thursday that September inflation pressures fell to a more than six-year low, a Fed president thinks lowering interest rates is not the answer right now.
“I think lowering interest rates right now, maybe, is not the right response,” James Bullard, president of the Federal Reserve Bank of St. Louis, told an audience in Bloomington, Indiana after giving a speech on Thursday.
The Federal Reserve is naturally inclined to raise interest rates to combat inflation, and lower them to reduce the pull of downward economic activity or recession.
Continue reading Inflation eases, but Fed’s Bullard concerned with cutting interest rates
With the latest financial sector turmoil and easing inflation, many economists were at least thinking the Federal Reserve would reduce interest rates on Tuesday. That was not the case. The Fed left the benchmark federal funds rate stead at 2 %, where it’s been since April and for the third straight meeting.
The vote was unanimous, without even a dissent from Dallas Fed President Richard Fisher, who voted to increase rates during two prior Fed meetings.
A MarketWatch article by Greg Robb aptly opened with the the likely intent on the move:
"[The fed is] trying to project an appearance of calm and stability amid the turmoil of financial markets."
The Federal Open Market Committee (FOMC) statement reflects continual concern over economic growth and the direction of inflation despite the latter showing a slight easing according to a report today by the a Labor Department.
Continue reading Fed leaves rates steady at 2% despite financial turmoil and easing inflation
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
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
The Federal Reserve met Tuesday and did what most expected… nothing. Concern over both inflation and economic growth were voiced. But in the end, the Fed left the benchmark federal funds rate at 2 %, where it’s been since April.
The vote was 10-1, with a dissent from Dallas Fed President Richard Fisher, who wanted to increase rates to combat inflation, as he did in the last Fed meeting.
Based on the Federal Open Market Committee (FOMC) statement after the meeting, investors took measure and concluded the Fed would not raise rates in the near term either. Continue reading Fed warns against inflation, but hold rates at 2%