Rate cuts lead to a weaker US Dollar and higher inflation.
Was the Fed created to help out the DOW profit margin or to minimize inflation?
YAHOO NEWS
1 minute ago
WASHINGTON - The Federal Reserve has cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.
http://news.yahoo.com/s/ap/fed_interest_rates
Holy Cow!
Favorite Answer
To make oil cost more so george and his pals can make more money.
beta_hat
The higher inflation is part of the reason they stated that they do not plan to cut rates again for a while. They are obviously concerned about inflation. They are not supposed to care about the US dollar directly, though it matters indirectly for inflation and unemployment.
The Fed mandate is actually to watch out for inflation and to keep employment/production at full capacity. Unlike some central banks they have a dual mandate officially. I think their decision is based on two things:
(1)inflation is being driven by oil and food prices that are set on world markets and not really under the Feds control - this inflation hasn't fed back into labor costs yet. The economy is obviously not at full capacity, so it is not excess demand that is driving the inflation. So pumping up demand won't make the inflation situation much worse.
(2)GDP growth last quarter was 0.6%. There have been hundreds of thousands of lost jobs. And there is a credit crunch. So some monetary easing is warranted to boost aggregate demand.
B.Kevorkian
The Fed uses monetary policy to balance two threats: recession vs inflation. When the Fed cuts interest rates, that indicates that they judge the risk of recession to be greater than that of inflation.
Of course, we have inflation, it's 'excessive' inflation that they try to avoid, and the definition of 'excessive' changes. The Fed can and has failed spectacularly, as in the Carter years, when we had a sick economy /and/ high inflation. Frankly, today looks a bit like the Nixon era, and the next president's term may well resemble Carter's. Many of the same factors are in place.
u_bin_called
we have been a "spending" economy since the early 90's... holding or raising rates would encourage "investment" over "spending"...
but you must first have something in which to invest...
....like industry
...or natural resources
....or locally owned banks
you know, all the stuff it's easier to pay other people to do for us so that we don't break a nail or kill a spotted owl....
eldude
to 'spur' the economy, like the dying horse it is and needs.
it's a bandaid for the economy, nothing more. There are real problems that need to be addressed and people need to start drawing a line and deciding where they stand, for economic growth or against it. Too many people are uninformed yet voicing their opinions about something they know nothing about. Those people have the majority of followers that do not question what they are asking for or what the outcome will be. Long answer but, you get the point.