Monday, March 19, 2007

Fed's Inflation Concerns May Lead to Bigger Rate Cuts

By Craig Torres
March 19 (Bloomberg) -- Federal Reserve officials may cling this week to their bias for tighter credit, setting themselves up for bigger interest-rate cuts later in the year if the economy continues to lose momentum.
"The Fed is often a little behind the curve when you get to these turning points,'' says J. Alfred Broaddus Jr., president of the Richmond Fed from 1993 to 2004. "The reluctance to move toward ease once you have an inflation bias in place may be just a fact of life if you are concerned about credibility.''
Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee, meeting March 20 and 21, will most likely debate changing their tilt toward higher interest rates. They may even add language to their statement underscoring their concern about weakening economic conditions, economists say. That would allow them to set up expectations for a change in their rate outlook in case the economy deteriorates more than expected.
The Fed will be reluctant to go further because Bernanke and at least six other FOMC members are on record as saying they want inflation to slow to between 1 percent and 2 percent. The Fed hasn't achieved this goal since March 2004, almost two years before Bernanke became chairman.

No comments: