WASHINGTON, June 25, 2008
Fed Puts Brakes On Rate Cuts
After 10 Months Of Cuts, Central Bank Leaves Key Interest Rate Unchanged At 2 Percent
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Play CBS Video Video Fed Halts Rate Cuts Caught between a slow economy and rising inflation, the Federal Reserve chose to leave interest rates alone and wait to see what the world markets will do next. Nancy Cordes reports.
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(AP / file)
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Interactive Inside The Fed A history of the Federal Reserve, glossary of terms and a look at changing interest rates.
Fed Chairman Ben Bernanke and all but one of his central bank colleagues agreed that the best course was to leave a key rate alone at 2 percent, as the country slogs through the crosscurrents of plodding economic growth and zooming energy and food prices that threaten to spread inflation.
That meant the prime lending rate for millions of consumers and businesses stayed at 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
The decision brought to a close a powerful series of rate reductions that started in September and extended through late April. It was the central bank's most aggressive intervention in two decades to shore up an economy bruised by the trio of housing, credit and financial crises.
On Wall Street, stocks ended with a modest gain. The Dow Jones industrial average closed up 4.40 points to 11,811.83. Broader stock indicators managed to log stronger gains than the blue chips.
The Fed said it believes its rate cuts will "promote moderate growth over time" as they work their way through the economy. It also said risks that economic growth will falter appear to have "diminished somewhat."
At the same time, the Fed expressed heightened concern about inflation.
"Upside risks to inflation and inflation expectations have increased," the Fed said. Inflation eats into paychecks, corporate profits and erodes the value of investments. It is hard to control once it gets out of hand.
Since last spring, the price of staple foods and other necessities have jumped nearly 10 percent, a level of inflation the country hasn't seen since the early 1980s, reports CBS News correspondent Nancy Cordes.
"What's remarkable about this inflation is that it appears to be global," said trader Art Cashin. "And that's very rare."
Cashin says Wall Street is becoming more alarmed by price spikes around the world, reports Cordes. In China, food prices are up 23 percent; Germany's inflation rate jumped nearly 1 percent in May alone; and Japan is weathering its highest inflation rate in nearly 30 years.
"We haven't seen anything that resembles this since back in the day when Spain was bringing gold from the New World and it caused inflation all across Europe," said Cashin.
Some Wall Street investors and economists think the Fed, to fend off inflation, might be forced to start boosting rates as early as its next meeting on Aug. 5 or toward the end of this year - possibly at the Dec. 16 meeting.
Others, however, think that's a situation the Fed would like to avoid - especially given that the housing market is stuck in a deep slump, foreclosures are at record highs and jobs are harder to find. Raising rates too soon could hurt housing and deal a setback to the national economy. Those analysts believe the Fed won't start to push up rates until next year.
The Fed didn't signal that a rate increase was imminent, instead leaving the timing open.
However one member - Richard Fisher, president of the Federal Reserve Bank of Dallas, wanted to increase rates at Wednesday's meeting. Fisher, who has a reputation for being extra vigilant on inflation, was the sole dissenter.
"The needle is shifting more to greater concerns over inflation as opposed to economic growth," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group. "That means the Fed's next move in interest rates will be up but the Fed left its options open with respect to timing."
Although Fed policymakers believed the economy would eventually gain some traction, they acknowledged that conditions are delicate and the economy is not out of the woods yet.
"Labor markets have softened further and financial markets remain under considerable stress," the Fed said. "Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters."
The economy has grown at a snail's pace in recent months. And, employers have cut jobs every month so far this year. The unemployment rate jumped from 5 percent in April to 5.5 percent in May, the largest one-month increase in two decades. The unemployment rate is expected to keep on rising in the months ahead, even if economic growth improves somewhat.
Hours before the Fed's decision, the government released a report underscoring the depth of the housing slump. New-home sales fell 2.5 percent in May, while home prices were down 5.7 percent from a year earlier, the Commerce Department said.
Mortgage rates are rising - spurred by investors' concerns about inflation. Those higher rates spell yet more headaches for the flailing housing market.
In a string of speeches over the past few weeks, Bernanke and his colleagues have ramped up tough anti-inflation talk. They've done that to rein in inflation expectations of consumers, investors and businesses. If those groups think prices will keep on rising, they'll act in ways that can worsen inflation.
Bernanke, in a rare public utterance for a Fed chief, also has sounded a warning that the slide in the U.S. dollar could contribute to a rise in inflation. He has sought to use words - instead of action - to bolster the dollar and try to lessen inflation pressures.
Consumer prices in the first five months of this year have risen at an annual rate of 4 percent. That's down from a 4.1 percent increase last year - the biggest jump in 17 years - but is still too high for the Fed's liking. Gasoline prices and oil prices have set a string of record highs. Gas has topped $4 a gallon, while oil prices are at $134.55 a barrel.
The Fed said it expects inflation to moderate later this year and next but said rising prices for energy, food and other commodities are a cause of concern. Those increases have made people boost their inflation expectations. Thus, "uncertainty about the inflation outlook remains high," the Fed said.
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Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
But all Americans understand where inflationary pressure comes from every time they shop-- the cost of driving, the cost of transporting goods, the cost of flying from point to point. Even the cost of growing produce for the supermarket.
The culprit is Big Oil and oil commodity speculation. These twin profit centers could not care less about the economic harm they bring about, all in pursuit of the dollar, with no thought of the rest of us.
These are not ordinary times, but thoroughly ordinary men would have us believe they are acting as leaders.
They are not. And how interesting Bush has bitten his tongue rather than criticize Big Oil, as the industry continues to plunder the budgets and even savings of Americans who must struggle to stay afloat.
Posted by navpro at 12:33 PM : Jun 25, 2008
There are already plenty of statues honoring Bush scattered on the ground throughout Texas pastures...
why not just "loan" the cash at no interest.....it''s not like it is worth anything these days anyway.
............
After a large pool of blood surrounded the gunshot victim...
...Dr. Bernanke finally decided to use bandages to help stop the bleeding.
After 10 Months Of Cuts, Central Bank Leaves Key Interest Rate Unchanged At 2 Percent"
Every time they cut the rate, the dollar is devalued against foreign currencies.
NOW that the dollar is almost worthless against other country''s currencies, they finally realized that their rate cuts are hurting us? AFTER the damage is done?!?!
Typical Bush administration "way too late" reaction.
Are you sure that Bernanke wasn''t talking about paper cuts? It always looks better on paper than in actual practice, especially with this bunch of idiot morons. Me think Bernanke speak with forked tongue.
Posted by arrestbush1 at 02:29 PM : Jun 25, 2008
..........
The third chapter of the movie, referring to the not-so "Federal" Reserve, that would be more like 30 minutes into the movie, or so. But for first timers watching, keep a very open mind... and watch the whole movie.
Posted by Credibility2
To be fair much of the mess he is dealing with was hatched and perpetrated under Greenspan. In the 80''s Greenspan was already talking about us becoming a service sector economy.
We can only hope that they end up in a Federal pen where fellow inmates would be allowed to introduce these scum to the butt buddy conjugal system of love.
If the Fed were really tough on inflation, they would take away the Bu$h Wargasm credit card...
Gee, somebody call a national holiday, Bush and Paulson have finally woke up to the fact that "dollar''s weakness has contributed to the big jump in oil prices."
Now if these moronic twins can wake up to the fact they caused this problem, we can erect a statue of them in front of Bushes ranch in Crawford Texas! Duh!
- by petro49l June 25, 2008 3:22 PM EDT
- George W. Bush is a craven homosexual and schizophrenic. He is nothing more than a tool for the Saudis to raise gasoline prices. The American economy is in ruins because of inflation. George Bush is simply sending U.S. finance to Saudi Arabia.
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