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Inflation may force Fed to hold back on rate cuts
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| Contributor | ArmyDem |
| Last Edited | ArmyDem Apr 25, 2008 02:18pm |
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| Category | News |
| News Date | Friday, April 25, 2008 08:00:00 PM UTC0:0 |
| Description | By Kevin G. Hall | McClatchy Newspapers
Posted on Friday, April 25, 2008
NEW YORK — A few weeks ago, financial analysts here were certain that the Federal Reserve would try to spark the economy with another half-point cut in interest rates when its policy-making committee meets next week.
Since then, however, soaring oil prices and food riots across the globe have raised fears that people at home and abroad are becoming convinced that the world is entering an era of rising inflation, and they're adjusting their expectations and behavior as a result.
In light of that, the Fed now may not cut rates next week. If its rate-setting Federal Open Market Committee (FOMC) does cut its benchmark federal funds rate — the rate that banks charge one another for overnight lending — it's likely to be only a quarter-point, to 2 percent, not the aggressive cut that most analysts were projecting weeks ago.
Even if the Fed cuts the rate, it's likely to signal that it intends to pause a while before cutting rates again because inflation remains stubbornly high — even though the U.S. economy appears to be stalled.
Inflation, the rise of prices across the economy, remains a threat at home and abroad. The biggest part rises from the seemingly unstoppable climb in oil prices. But the prices of everything from grains and dairy products to base metals and raw materials also are surging. That drives up the price of nearly everything we eat, heat, cool, drive or manufacture. |
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