The Fed cut its rate again by 25 basis points to 2%, its seventh consecutive rate cut. But whether or not this will significantly impact on inflation remains to be seen, considering that the crises in energy, food and raw materials come from the supply side of the equation. So you still have a situation where despite weak consumer spending and falling interest rates, inflation continues to rise.
The Fed can only hope that this move will translate to better consumer spending--say improvements in housing prices and auto sales-- but with no resolution to the credit crunch in sight yet, and as consumer spending well in the doldrums due to rising gas and food prices, it will take a while before consumption will be at normal levels. Consequently, 1Q08 growth in the US was at a sluggish 0.6%.
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