Economics & Research Blog
Fed Cuts by Quarter Point, and GDP +3.8%
We warned them :
By Dr. Joe Webb
Published: October 31, 2007
We warned them :) but the Fed cut anyway.
This has to make one think that the subprime problems are still spooking (Halloween pun intended) the Fed and that there are more problems to be found. Or is it that they are rewarding the bad behavior of bankers and borrowers, teaching them that things will never get too bad because a bailout is always just weeks away? This easing makes it easier for oil prices to easily break the $100 mark, soon, unless something really odd happens.
GDP for the third quarter came out at 3.9%, compared to the prior quarter. But when you look at it on a year/year basis (am I the only one who does this?) it comes out to a disappointing 2%. Despite the higher oil prices, the inflation measure in the GDP calculation was only 1.8%.
Since no one measures their business in real dollars but instead uses the current dollars in their wallet, for your business to grow at the rate of GDP, your sales have to be up by 3.9+1.8, or 5.7%.
We're disappointed by the Fed lack of resolve. It's not the first and it won't be the last time.