Here are three telling quotes from a Reuters news story about the Fed contemplating a rate cut from 2.25 to 2.00.
April 30, 2008 (Reuters)
The U.S. housing market has shown no sign of hitting bottom and credit markets still appear strained. At the same time elevated prices for food and fuel are causing concerns among both consumers and Fed officials………In addition to lowering rates to spur the economy, the central bank has rolled out a series of emergency steps to pump billions of dollars of liquidity into financial markets to beat back a credit crunch. Policy-makers will debate a new liquidity tool — paying interest on bank reserves — on Wednesday…………
Policy-makers also expect the combined effects of the central bank’s rate cuts — which act with a lag — and a $152 billion fiscal stimulus package will provide a boost to the economy in months to come.
All of these so called “solutions” are inflationary. By reducing the interest rate they reduce the value of the currency and hence increase the cost of fuel and other imported items. By printing a wack of money (152 Billion they don’t have) they are further devaluating the dollar. Will the Fed give us hyper inflation?? It is a real possibility. When hedge funds run for cover in oil and commodities they are hedging against inflation. What is your hedge against inflation? What should you do about inflation eating up your equity and savings? We are going to address that in coming posts.
By-the-way, who is getting that $152B? It better not be the financial institutions that got us in this mess – although it sounds like it. We will be watching to see where it goes. Furthermore, recently the Senate said they couldn’t bail out the Banks because the people wouldn’t hear of it (based on polls). Seems like all that has changed in the last week.
Paul Weigel