"Print more greenbacks, please" -or- "Bring on that liquidity trap":
Not too much more ammo left in that cap-gun of his...
biz.yahoo.com
Meyer's Comments Boost Rate Cut Hopes
By Barbara Hagenbaugh
CLAYTON, Mo. (Reuters) - The U.S. Federal Reserve must act aggressively when interest rates are low, Fed
Governor Laurence Meyer said on Tuesday in a speech that boosted hopes the Fed will cut rates again when it
meets in two weeks.
Meyer said when interest rates are low, as they are now,
there is a risk that keeping rates steady could lead to a drop in inflation. That could weaken
the Fed's ability to bring real interest rates -- rates adjusted for inflation -- to below zero,
which is sometimes desired to inject some life into a struggling economy.
``It seems to me the appropriate response is to respond more aggressively to the downside
prospects,'' Meyer told members of the St. Louis chapter of the National Association for
Business Economics.
``The danger in waiting is that inflation might drift lower, ruining the ability to drive the real
fed funds rate into negative territory as might be necessary,'' he said.
Meyer pointed out, however, that he was speaking for himself, not for the central bank's
rate-setting Federal Open Market Committee of which he is a member.
Bond prices rose following Meyer's speech as investors read his speech as a signal the
Fed is prepared to cut interest rates for the 11th time this year when it meets on Dec. 11.
Many economists had been expecting the Fed to slice rates again next month. But many
market participants had been leaning toward the opinion the central bank would make no move, in light of positive economic data that have been
trickling in over the last couple of weeks.
``WAKE-UP CALL''
``It's a wake-up call to those who were beginning to take out the rate cut and pricing in interest rate increases,'' said Tony Crescenzi, chief bond
market strategist at Miller, Tabak & Co. in New York.
The Federal Reserve has already cut interest rates 10 times this year -- three times since Sept. 11 -- to their lowest level in 40 years. At 2.0
percent, the key fed funds rate, which influences borrowing costs across the economy, is still above several measures of inflation.
In a separate speech on Tuesday, Chicago Fed President Michael Moskow said the United States is experiencing a period of ``quite weak''
economic activity and the timeline for an economic recovery remains uncertain.
Although he did not label U.S. economic performance as recessionary, Moskow noted that the National Bureau of Economic Research's business
cycle dating panel announced on Monday that a U.S. recession began in March. The six-member NBER panel is considered the final word on U.S.
recessions.
``Yesterday's announcement underscores the fact that the events of September 11 had a sudden adverse impact on the economy,'' Moskow told
business leaders in Chicago. ``The economic recovery that -- before September 11 -- we had expected to begin this year, will be delayed. We
expect the economy to improve next year, although the timing of that improvement is uncertain.''
MORE STIMULUS, PLEASE
Meyer also said he expected the economy to improve gradually over the next year, assisted by the Fed's rate cuts as well as by fiscal policy.
However, he said the prolonged debate in Congress about the size and nature of a fiscal policy stimulus following the attacks on Sept. 11 was
making his job, and those of other policymakers, more difficult since they do not know what outcome to build into economic models.
``Congress needs to pass additional stimulus before year end,'' said Meyer, who plans to leave the Federal Reserve when his term expires early
next year.
Lawmakers have been debating tax cut and spending measures totaling as much as $100 billion to boost the U.S. economy, but have been unable
to come up with compromise legislation to pass along to President Bush for his signature. Congress had already passed a tax cut earlier in the year.
Meyer's and Moskow's comments came on a day that offered mixed readings on the health of the U.S. economy.
The Conference Board, a New York-based private business research group, said its index of consumer confidence fell to 82.2 in November,
suggesting the holiday shopping season will be sluggish. The index, now at its lowest level in more than seven years, fell unexpectedly from a
revised 85.3 in October.
Sales of U.S. existing homes, meanwhile, rose 5.5 percent in October, the National Association of Realtors said, as consumers, recovering from the
Sept. 11 attacks, took advantage of low mortgage rates.
BC |
