Fed Cuts Rates: 75 Basis Points

by Florida's #1 Mortgage Planner on March 18, 2008

The Fed has once again dropped the Fed Funds Rate, this time by 75 basis points bringing it down to 2.25%, less than recent inflation rates even with a flat CPI report.

I am glad to see they didn’t drop the full 1.00% the markets began to expect this morning, so maybe the Fed does have some balls after all, but they aren’t very big if they do.  They are clearly still downplaying the existence of inflation.

Inflation has been elevated, and some indicators of inflation expectations have risen.  The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.  Still, uncertainty about the inflation outlook has increased.  It will be necessary to continue to monitor inflation developments carefully.

They do acknowledge inflation is rising, but still believe that somehow commodity prices are going to stabilize.  What world do they live in?

Commodity prices have climbed over 30% since they started cutting rates (see my prior post just below this one).  With yet another rate cut, the further devaluation of the dollar will likely keep sending commodity prices higher, just as it has been, so a stabilization is highly unlikely.  The only hint that this could be possible is the fact that eventually Americans will be forced to ride bikes to work.

So, even while inflation climbs, the Fed is simply delaying their forecast for “stabilization”.

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