Slashing Interest Rates

Posted by on . 2 comments.

It is my sad duty to report what my flies-on-the-wall have been reporting from the Fed since Monday.

The runaway winner for the most frequent question heard, in the halls and in the restroom stalls, is: “Explain to me again why interest rates can’t be negative?”

Comments

  1. matt says:
    January 30, 2008 at 8:16 am

    Fed May Cut Rate Below Inflation, Risking Bubbles:

    Jan. 29 (Bloomberg) — The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974.

    The threat of cascading stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. That would bring the rate to 3 percent, approaching one measure of price increases monitored by the Fed.

    “The Fed is going to have to keep slashing rates, probably below inflation,” said Robert Shiller, the Yale University economist who co-founded an index of house prices. “We are starting to see a change in consumer psychology.”

    So-called negative real interest rates represent an emergency strategy by Chairman Ben S. Bernanke and are fraught with risks. The central bank would be skewing incentives toward spending, away from saving, typically leading to asset booms and busts that have to be dealt with later.

    we’re all in such good hands. these guys are smart.

  2. sarabeth says:
    January 30, 2008 at 9:02 am

    The surest way to a resilient economy, of course, is by making it far more attractive to spend today than save for tomorrow.

    Once national savings go down the tube, the economy will really start to rock.