Bernanke: Fed Ready to Slash Rates, Again
February 28, 2008
(Long Island, N.Y.) Federal Reserve Chairman Ben Bernanke appeared in-front of the House Financial Services Committee yesterday and insinuated willingness by the Fed to slash down interest rates yet again if needed to boost a wavering US economy amidst a struggling housing and credit sector.
The US economy has dropped off significantly in the last three quarters of the calendar year. In that period, the Unemployment rate has jumped to unfavorable territory as more people file for unemployment claims than in recent years. Our economy has received impacting blows from the housing industry and the credit market sector which worries the investors and consumers alike resulting to lower spending thereby damaging our economy which is now fighting threats of stagflation, a stage where in economic growth is stagnant while inflation rises.
The economic situation has become distinctly less favorable since the summer, the country should prepare for sluggish economic activity in the near term, energy prices to continue to rise at a sharp clip it would “create a very difficult problem” for the economy, Inflation would spread and growth would be further restrained, if that happened, it would be a “very tough situation,” Bernanke said.
The Federal Reserve implemented the first interest rates cut on September of last year followed by a series of cuts bridging January and February this year totaling 1.25 % slash down which represents the biggest interest rate cuts made by the Feds in 25 years for a 30-day period. Wall Street responded positively to the Feds maneuvers which Bernanke hopes to repeat if Central Bank were to cut down rates again next month.
“Should high rates of overall inflation persist,” Bernanke said, “the possibility also exists that inflation expectations could become less well-anchored.” If people think inflation is escalating, they will act in ways that could make things even worse, a sort of self-fulfilling prophecy that could complicate the Fed’s job of trying to nurture growth while keeping inflation under control.
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