January Federal Reserve Interest Rate Decision
Jan 29th, 2008 by Shaun Carter
It’s interesting how the majority of analysts are predicting the Federal Reserve to cut rates by 50 basis points on Wednesday January 30, 2008. I’m not sure if there will even be a rate cut, let alone a 50 basis point cut after the Fed’s emergency 75 basis point cut from last week.
Durable goods orders for December were up 5.2% - double what analysts expected. Currently, economists are predicting last quarter’s GDP to have grown by only a 1.2% annual rate signaling a stalling of the economy and adding considerable fuel to the inflation fire.
It is very hard to read Fed Chairman Bernanke’s intentions because he seems to flip flop more than John Kerry in the 2004 presidential election. In the beginning of his freshmen term as Chairman, Bernanke made it clear that his decisions will not be swayed by investor sentiment, but by inflation numbers because he is of the philosophy that the Fed should target a certain inflation rate and manipulate monetary policy to maintain that rate.
But his sudden emergency rate cut move amid a global stock sellof has proved that he is, in fact, at the mercy of the markets demands for cheap money and now his actions are extremely unpredictable. I just don’t see how he will justify a 1.25% cut in the fed funds rate in the span of two weeks and don’t see that as a possibility.
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