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Economics & Research Blog

Fed Cuts Rates a Half Point... Just Like We Wanted, Not Like We Forecast

Not that the Fed listens to yours truly,

By Dr. Joe Webb
Published: September 18, 2007

Not that the Fed listens to yours truly, but we were expecting them to dribble out quarter point changes over the next meetings, and now we got what is probably the best: a half point.
Even better, this may mean that they will not act act the next meeting other than to just leave things as they are.
Perhaps this is an admission that the economy has slowed considerably (as mentioned at the webinar, the year-over-year comparisons have been running at less than two percent) and that inflation has backed off, as indicated by today's Producer Price Index report.
There's a difference between increased prices because of shortages or increased demand. Those are not inflationary, but are the natural price movements for goods and services. Discerning which price movements are rational and which are that "general rise in prices" that defines inflation is sometimes quite difficult. Perhaps the Fed has made that judgment, finally, and we can move on with things.
As far as this being a "bailout" for subprime mortgage excesses, that's not what it is in my mind. There's no reason for the marketplace outside of that fiasco to pay the penalties for that kind of fiscal malfeasance. I look at this as more of a multi-purpose move: recognition of slower economy, lower inflation, and then satisfying higher liquidity needs to tolerate the downward price pressures on housing.
Now, perhaps, they'll finally take that vacation and let the markets sort things out.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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