Fed Ready to Cut Interest Rates Again

[SMCengineer]

Fed Ready to Cut Interest Rates Again
Wednesday February 27, 3:28 pm ET
By Jeannine Aversa, AP Economics Writer
Bernanke Says Fed's Priority Is Shoring Up the Economy, Pledges to Cut Interest Rates


WASHINGTON (AP) -- The Federal Reserve is ready to lower interest rates again to brace the wobbly economy even as zooming oil prices spread inflation, Chairman Ben Bernanke signaled to Congress on Wednesday.

He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.

For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.

"The economic situation has become distinctly less favorable" since the summer, the Fed chief told lawmakers.

Since that time, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing -- further weakening the economy.

The country should prepare for "sluggish economic activity in the near term," Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.

Were energy prices to continue to rise at a sharp clip -- something the Fed does not anticipate -- it would "create a very difficult problem" for the economy, Bernanke said. Inflation would spread and growth would be further restrained, he said. If that happened, it would be a "very tough situation," he added.

The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, sticking closely to assurances he offered earlier this month.

The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter-century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18. Some analysts believe rates will drop again in April.

Brian Bethune, economist at Global Insight, said Bernanke's remarks "keeps the door wide open for further rate cuts."

Bernanke said at some point this year, the Fed will need to "assess whether the stance of monetary policy is properly calibrated" to foster the Fed's objectives of price stability "in an environment of downside risks to growth."

He was hopeful that previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business would energize the economy in the second half of 2008.

As the Fed chief began his first day of back-to-back appearances on Capitol Hill to discuss the economy, there was more bad news on the housing and manufacturing fronts. Sales of new homes fell in January for a third straight month. Orders to factories for big-ticket manufactured goods dropped in January by the largest amount in five months.

Bernanke has come under some criticism for not acting sooner in cutting rates. But Alabama Rep. Spencer Bachus, the committee's top Republican, expressed sympathy. "There is perhaps no other public figure in American who has been subjected to as much Monday morning quarterbacking as you have over the past six months," Bachus said.

The committee chairman, Rep. Barney Frank, D-Mass., suggested the economy is not suffering through a garden-variety slowdown.

"I don't want to appeal to you to use the word recession because I'm not going to be responsible for the nervous people at the stock market who overreact when you twitch your nose," Frank told Bernanke. "But the problems we now have are different."

Many of those woes are linked to the housing meltdown. Bernake was asked when he thought the housing market might stabilize. It possible, he said, that by "later this year it will stop being such a big drag directly" on the economy. But home prices probably will decline into next year, he added.

"It is very difficult to know, and we've been wrong before," Bernanke said.

Even as the Fed tries to shore up the economy, it must remain mindful of inflationary pressures, Bernanke said.

Oil prices, which have set records, briefly shot past $102 a barrel on Wednesday; prices eased, but still remain above $100 a barrel.

"Should high rates of overall inflation persist," Bernanke said, "the possibility also exists that inflation expectations could become less well-anchored." If people think inflation is escalating, they will act in ways that could make things even worse, a sort of self-fulfilling prophecy. Bernanke said that could complicate the Fed's job of trying to nurture growth while also keeping inflation under control.

If oil prices continue to skyrocket this year, it would be "hard to maintain low inflation," Bernanke acknowledged.

[Pooks]

The thing I noticed about Bernanke is there seems to be either a lot of people know ahead of time what he is going to say (inside information)
or more likely he uses the CENTRAL BANKS money a lot to control markets

In the instance last night.. the EURO broke the 1.50 mark against the USD.. meaning USD is weaker now than it has ever been in decades.

the odd thing is,, that is usually an inflationary sign.. plus the OIL spiked, gold set a new record against the Us dollar also..

What makes me think the federal reserve is a big player in manipulating our economy is the fact.. that if he wanted to do damage control like in the past he would say he would think twice about cutting rates.

AN EXAMPLE OF BERNANKE USING HIS INFLUENCE TO DAMAGE CONTROL WOULD BE when the stock markets look like they are about collapse, he usually comes out with Interest rate cuts news, to manipulate them up, this was not the case this time... stocks have been stable.

He instead says more cuts are coming.
but oddly enough it seems to already be priced in, in the currency market, before he even opened his mouth..

makes me think the central bank was artificially keeping the dollar strong for the last couple of month (which of i had suspicions off There just appeared to be unbreakable wall at 1.50)

so 2 days ago,, they backed off the STRONG DOLLAR POLICY at 1.50
and the EURO started to rise;..
now they questions is where they are going to cap it again.

and what this really means for our entire economy..
hmmmmm.. other than we are not out of the woods yet + people with money in savings accounts getting robbed.

[soulstealer]

Theres the thought I have been having that he's purposely debasing the currency to create a vacuum in housing market if you will..... artificially stabilizing the home prices higher then normally would occur in a correction do to the dollars lack of value.....dont know if theres a name for that type of inflation compensation or what... just a thought...as I'm not a finance major

[Prada]

Well its up to the central bank to apply monetary policy. With the economy slowing down a little, I see it as no surprise that they cut interest rates to stimulate it. Government spending is another issue

[soulstealer]

Well its up to the central bank to apply monetary policy. With the economy slowing down a little, I see it as no surprise that they cut interest rates to stimulate it. Government spending is another issue

The only problem with their "policy" is that they create a growth cycle.... and then interrupt it which causes these "bubbles" of artificial valuation and eventually a depression... either because of multi sector collapse when they dont act or inflation to the point of destroying growth... its a stupid irresponsible policy...

[Pooks]

Theres the thought I have been having that he's purposely debasing the currency to create a vacuum in housing market if you will..... artificially stabilizing the home prices higher then normally would occur in a correction do to the dollars lack of value.....dont know if theres a name for that type of inflation compensation or what... just a thought...as I'm not a finance major

It has been done in the past...
a lot of times to fund wars..
and also in the early 1900s... it was pushed by the agragarian democrats.. basically democrats working for the interests of the farmers..

farmers were in big debt, cause of the equipement, and property and stuff they have to buy for their farms..

so their agenda was to take the U.S dollar of the gold standard.. and dilute it..

this way... the Farmers got out of debt.
down side.. Other U.S citizens, whose money was loaned to the farmers.. basically people with savings accounts in banks... they ended up losing to inflation.

on a personal note: Hoping the USD takes some back today...
I dont like going against the trend, but the EUR;USD looks topsy.. and i already got my stop-loss at break-even... so go U.S Dollar go!
but yup in the big picture we're screwed!

[Prada]

The only problem with their "policy" is that they create a growth cycle.... and then interrupt it which causes these "bubbles" of artificial valuation and eventually a depression... either because of multi sector collapse when they dont act or inflation to the point of destroying growth... its a stupid irresponsible policy...

Right, well there has to be harmony between monetary as well as fiscal policy(fed govt). If not well you have a "stupid irresponsible policy". Every action has an adverse reaction on some economic measure.

[soulstealer]

Right, well there has to be harmony between monetary as well as fiscal policy(fed govt). If not well you have a "stupid irresponsible policy". Every action has an adverse reaction on some economic measure.

Sure and I completely understand the need so to speak in having a flexable monetary policy that allows for inflationary and deflationary policys to impact the market.... what I dont understand is why congress isnt doing their goddamn job of NOT spending more then we have and NOT auditing the FED its fuking insane..... and thats where a gold backed dollar comes into play... you back the dollar with gold... audit the fcking gold supply and pass legislation requiring the Fed to publish the money supply.... and PRESTO.... the insanity ends but until that happens we're going to get this insane deceptive inflationary drunken sailor policy we have now.... and there going to place the blame on someone other then the FED/CONGRESS!!!!!... the Brokers did it!!! it was the sub prime guys!!!! Oh the saving and loans it was them.... oh it was... shut the fuk up and solve the problem... do you hear me?!!!!

[Pooks]

Sure and I completely understand the need so to speak in having a flexable monetary policy that allows for inflationary and deflationary policys to impact the market.... what I dont understand is why congress isnt doing their goddamn job of NOT spending more then we have and NOT auditing the FED its fuking insane..... and thats where a gold backed dollar comes into play... you back the dollar with gold... audit the fcking gold supply and pass legislation requiring the Fed to publish the money supply.... and PRESTO.... the insanity ends but until that happens we're going to get this insane deceptive inflationary drunken sailor policy we have now.... and there going to place the blame on someone other then the FED/CONGRESS!!!!!... the Brokers did it!!! it was the sub prime guys!!!! Oh the saving and loans it was them.... oh it was... shut the fuk up and solve the problem... do you hear me?!!!!

a simplistic answer that does not come even close to addressing the issues u state...

but.. Inflation might be in the interest of a lot of congressman.
It is a way to re-distribute wealth.
which reminds me I need to finish a Henry Hazlitt book.. that addresses this exact issue..

http://www.mises.org/books/inflation.pdf

[soulstealer]

Pooks it absolutely is a way to redistribute wealth but what I am saying is if we have true transparency for all to see with true numbers then the only one to blame for the situation would be congress... I'm not saying it would completely solve it what I am saying is we would unequivocally beable to pin it to our government as being the assholes...and that would be the first step to correcting it...

[soulstealer]

And it doesn't even have to be backed by gold... just some type of Commodity for some type of a direct correlation....Just my 2 cents

[Pooks]

And it doesn't even have to be backed by gold... just some type of Commodity for some type of a direct correlation....Just my 2 cents

that can be caused to inflate also and has in the past..
Humans are clever animals lol.. if there is a will.. there is a way...

as I mentioned the Agragrian Democrats earlier up in the post..
their method of inflation was to.. change the gold standard.. to a gold and silver standard..

since now there was more commodities backing the dollar.. it meant that one dollar was worth less...inflation..

if they wanted to dilute the currency further using commodities, they would just attach more commodities to the dollar.. oil, wheat , whatever...

eventually they just decided.. screw it.. lets not back the currency with anything.

INFLATION = NEW PRINTED MONEY - NEW SUPPLY OF GOODS.

If the GOVT prints 20% more currency in a year..
but because of amazing industrial capacity increases of 30%...
we'd actually have DEFLATION of 10%

-----------------
I'm just kind of going off the top of my head.. ramblin

BUT...

U notice how the U.S govt has been printing money massively now already for a long time.

but inflation was kept in check.. cause there were ample new supply on the market from developing nations..

this kept the prices low.. and by printing lots of loot and giving U.S citizens lots of credit, we were able to sort of capitalize in bringing these goods home..

but now...
They're talking about how Supplies are running low, and its getting tight,, and its causing economic slowdowns.. U got south african factories runnings at like 50% efficiency cause of lack of electricity.. and in China they are short on Coal and steel, and its grinding their economy to a screeching halt..

now the concept of printing money becomes a problem.. and inflation is starting to creep up... cause additional supplies arent keeping up with addition greenbacks.

[soulstealer]

that can be caused to inflate also and has in the past..
Humans are clever animals lol.. if there is a will.. there is a way...

as I mentioned the Agragrian Democrats earlier up in the post..
their method of inflation was to.. change the gold standard.. to a gold and silver standard..

since now there was more commodities backing the dollar.. it meant that one dollar was worth less...inflation..

if they wanted to dilute the currency further using commodities, they would just attach more commodities to the dollar.. oil, wheat , whatever...

eventually they just decided.. screw it.. lets not back the currency with anything.

INFLATION = NEW PRINTED MONEY - NEW SUPPLY OF GOODS.

If the GOVT prints 20% more currency in a year..
but because of amazing industrial capacity increases of 30%...
we'd actually have DEFLATION of 10%

-----------------
I'm just kind of going off the top of my head.. ramblin

BUT...

U notice how the U.S govt has been printing money massively now already for a long time.

but inflation was kept in check.. cause there were ample new supply on the market from developing nations..

this kept the prices low.. and by printing lots of loot and giving U.S citizens lots of credit, we were able to sort of capitalize in bringing these goods home..

but now...
They're talking about how Supplies are running low, and its getting tight,, and its causing economic slowdowns.. U got south african factories runnings at like 50% efficiency cause of lack of electricity.. and in China they are short on Coal and steel, and its grinding their economy to a screeching halt..

now the concept of printing money becomes a problem.. and inflation is starting to creep up... cause additional supplies arent keeping up with addition greenbacks.

I completely understand the economics of it..... I would just like to have some type of accountability for the action of..... currently its a.. "well thats not my department" sort of a thing.... and its like "but your treasury secretary... and your a fed how could neither of you be responsibly for this... well then who the fuk is"........."its the banks faults" ... "but you are the fking banks" you know what I mean pooks... accountability is all I'm looking for...

[Prada]

Sure and I completely understand the need so to speak in having a flexable monetary policy that allows for inflationary and deflationary policys to impact the market.... what I dont understand is why congress isnt doing their goddamn job of NOT spending more then we have and NOT auditing the FED its fuking insane....

That is where Im concerned as well. Im not to worried about monetary policy as I am about fiscal policy. Billions and billions of dollars on "wars". We shall see what derivatives are obtained by these....in the long run.

[soulstealer]

That is where Im concerned as well. Im not to worried about monetary policy as I am about fiscal policy. Billions and billions of dollars on "wars". We shall see what derivatives are obtained by these....in the long run.

But you have to look at monetary policy to gauge fiscal policy in the current situation the Fed can increase the money supply and burn that money on anything and the American people pay with inflation we need to change to monetary policy before we can every hope to achieve fiscal accountability...

[Prada]

But you have to look at monetary policy to gauge fiscal policy in the current situation the Fed can increase the money supply and burn that money on anything and the American people pay with inflation we need to change to monetary policy before we can every hope to achieve fiscal accountability...

Yeah I should rephrase that, I am worried about monetary policy as well its just that the fiscal policies that have been taken are....well questionable. Im not sure if I would be more content under the Dems. I doubt it. The value of the US $$ is also of concern. Against the Euro and CDN$....I believe the CDN$ is higher then the US. It was around $1US=0.70CDN for decades now they are at par.

[Pooks]

Yeah I should rephrase that, I am worried about monetary policy as well its just that the fiscal policies that have been taken are....well questionable. Im not sure if I would be more content under the Dems. I doubt it. The value of the US $$ is also of concern. Against the Euro and CDN$....I believe the CDN$ is higher then the US. It was around $1US=0.70CDN for decades now they are at par.

There is no monetary policy difference between the democrats and republicans..
the only differences are in taxation, and re-distribution of taxes. (not counting social differences)

if anything democrats in the past have supported inflation more than the republicans.. it serves their purposes of redistribution from creditors (rich) to debtors (poor)...
of course the really rich are well invested, and are not as impacted.. the real losers from inflation will be the middle class.

YOU are right, the Canadian Dollar is worth more than the U.S dollar right now.

$1 USD = .97 CAD today
in November the CAD was the strongest when $1 USD = .92 CAD.. looking at the charts it would be a very good bet it will head back towards .92

to compare just in MARCH of last year..
the $1 USD would still get you 1.18 CAD

[soulstealer]

There is no monetary policy difference between the democrats and republicans..
the only differences are in taxation, and re-distribution of taxes. (not counting social differences)

if anything democrats in the past have supported inflation more than the republicans.. it serves their purposes of redistribution from creditors (rich) to debtors (poor)...
of course the really rich are well invested, and are not as impacted.. the real losers from inflation will be the middle class.

YOU are right, the Canadian Dollar is worth more than the U.S dollar right now.

$1 USD = .97 CAD today
in November the CAD was the strongest when $1 USD = .92 CAD.. looking at the charts it would be a very good bet it will head back towards .92

to compare just in MARCH of last year..
the $1 USD would still get you 1.18 CAD

Hey Pooks maybe you can answer this as its been bugging me... in the even say the us were to replace their currency how is it implemented and how would they establish and exchange rate if it bears no backing.....? Or if you could just sight an example of another country doing it....

[Pooks]

Hey Pooks maybe you can answer this as its been bugging me... in the even say the us were to replace their currency how is it implemented and how would they establish and exchange rate if it bears no backing.....? Or if you could just sight an example of another country doing it....

When the EURO was formed..

Each currency was given a fixed exchange rate to the EURO

example 1.95 German Mark = 1 EURO
0.78 Irish pound = 1 EURO
1,936 Italian Lira = 1 EURO

these were figured out on 12-31-98
and on 1-1-99 the EURO started trading.

Its easy to convert everyone to one currency.. its not easy to agree who is going to decide on monetary policy..
with multiple currencies there can be multiple foreign policies.. so in a way it makes the world more diversified.. checks and balances..

if its universal, we're all in the same boat.. could be good, but could be bad too. I guess the progressive everything works together like a living entity theory.

[soulstealer]

When the EURO was formed..

Each currency was given a fixed exchange rate to the EURO

example 1.95 German Mark = 1 EURO
0.78 Irish pound = 1 EURO
1,936 Italian Lira = 1 EURO

these were figured out on 12-31-98
and on 1-1-99 the EURO started trading.

Its easy to convert everyone to one currency.. its not easy to agree who is going to decide on monetary policy..
with multiple currencies there can be multiple foreign policies.. so in a way it makes the world more diversified..

And see there in lies my question who give the Euro the fixed exchange rate? who determines its value... thats what I'm interested in..

[Pooks]

And see there in lies my question who give the Euro the fixed exchange rate? who determines its value... thats what I'm interested in..

oh ok..

The actual numbers on the currency itself are meaningless..
the only thing that really matters is how the value diverges compared to other currencies.

Why do most major currencies trade at like >1$>2$><3$.. but the yen is at $106 like in left field.. but we all know they are just as advanced as the rest of us.

The fixed rate was given at the end of trading on 12.31.98 when the central banks and traders sorted themselves out, before the conversion.

Its like a stock split.. before u had 20 shares at $100.. now u got 40 shares at $50

the actual value is the same.. no currency gained or lost value because of the conversion.

A lot of countries just lost control over their monetary control.
but saved money on transaction costs, and easier trade i suppose..
----------
its all bullshit,,, u know this..
its not backed by anything..
they can print in unison...
the eventual goal will be one currency for the whole world..

[soulstealer]

oh ok..

The actual numbers on the currency itself are meaningless..
the only thing that really matters is how the value diverges compared to other currencies.

Why do most major currencies trade at like >1$>2$><3$.. but the yen is at $106 like in left field.. but we all know they are just as advanced as the rest of us.

The fixed rate was given at the end of trading on 12.31.98 when the central banks and traders sorted themselves out, before the conversion.

Its like a stock split.. before u had 20 shares at $100.. now u got 40 shares at $50

the actual value is the same.. no currency gained or lost value because of the conversion.

A lot of countries just lost control over their monetary control.
but saved money on transaction costs, and easier trade i suppose..
----------
its all bullshit,,, u know this..
its not backed by anything..
they can print in unison...
the eventual goal will be one currency for the whole world..

Thats what made me so interested how can you agree to give up your bullshit paper crap with supposed value for the supposed value of some bullshit paper crap..... it would be the same thing as If I showed up at your house pooks and said I have 1,000 cuts of construction paper and they're worth 10,000 dollars each... lets exchange them...you'd be like uhhh. go fuk yourself.... and thats the part that has me so intrigued I know all about forex trading....but its seems ridiculous... because lets say you were exchanged a dollar for a rumored amero.. you dont know if the amero is going to be acceped everywhere... you dont know if its value will be stable or if it will tank... it just seems silly...

[SMCengineer]

Financial Services Committee Hearing
“Monetary Policy and the State of the Economy”
February 27, 2008
Ron Paul

Mr. Chairman,

A topic that is on the lips of many people during the past few months, and one with which I have greatly concerned myself, is that of moral hazard. We hear cries from all corners, from politicians, journalists, economists, businessmen, and citizens, clamoring for the federal government to intervene in the economy in order to forestall a calamitous recession. During the boom, many of these same individuals called for no end to the Fed's easy credit. Now that the consequences of that easy money policy are coming home to roost, no one wants to face those ill effects.

We have already seen a plan from the administration to freeze mortgages, a plan which is alleged to be only a temporary program. As with other programs that have come through this committee, I believe we ought to learn from history and realize that “temporary” programs are almost anything but temporary. When this program expires and mortgage rates reset, we will see new calls for a rate-freeze plan, maybe for two years, maybe for five, or maybe for more.

Some drastic proposals have called for the federal government to purchase existing mortgages and take upon itself the process of rewriting these and guaranteeing the resulting new mortgages. Aside from exposing the government to tens of billions of dollars of potentially defaulting mortgages, the burden of which will ultimately fall on the taxpayers, this type of plan would embed the federal government even deeper into the housing market and perpetuate instability. The Congress has, over the past decades, relentlessly pushed for increased rates of homeownership among people who have always been viewed by the market as poor credit risks. Various means and incentives have been used by the government, but behind all the actions of lenders has been an implicit belief in a federal bailout in the event of a crisis.

What all of these proposed bailouts fail to mention is the moral hazard to which bailouts lead. If the federal government bails out banks, investors, or homeowners, the lessons of sound investment and fiscal discipline will not take hold. We can see this in the financial markets in the boom and bust of the business cycle. The Fed's manipulation of interest rates results in malinvestment which, when it is discovered, leads to economic contraction and liquidation of malinvested resources. But the Fed never allows a complete shakeout, so that before a return to a sound market can occur, the Fed has already bailed out numerous market participants by undertaking another bout of loose money before the effects of the last business cycle have worked their way through the economy.

Many market actors therefore continue to undertake risky investments and expect that in the future, if their investments go south, that the Fed would and should intervene by creating more money and credit. The result of these bailouts is that each successive recession runs the risk of becoming larger and more severe, requiring a stronger reaction by the Fed. Eventually, however, the Fed begins to run out of room in which to maneuver, a problem we are facing today.

I urge my colleagues to resist the temptation to call for easy fixes in the form of bailouts. If we fail to address and stem the problem of moral hazard, we are doomed to experience repeated severe economic crises.