Most observers believe the Fed will cut rates a quarter of a point this week and then take a "wait and see" position on the economy.
There is a very good chance that events over the last week will cause the Fed to keep interest rates just as they are.
Interruptions in oil supply have pushed the price of crude for June delivery to almost $120 a barrel. This not only means that gas prices in the US could go above $4 but the costs of petrochemicals and heating oil should continue to move up sharply.
Food prices in the first quarter went up as fast as they have at any time in the last 17 years.
The other reason that the Fed may stop cutting rates entirely is that banks are taking the savings from lower rates to build their balance sheets but are not passing those lower rates on to consumers and businesses. Much of the value of being able to borrow money for less is not being seen in the economy at all. For example, the rates for mortgages are not going down.
With inflation running at an especially high level and credit rates unlikely to get better, the reasons for the Fed cutting rates further are harder and harder to identify
Douglas A. McIntyre is an editor at 247wallst.com and writes the Ten Stocks Under $10 newsletter.
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Reader Comments (Page 1 of 1)
4-28-2008 @ 10:32AM
Racerman said...
All the rate cuts that have been employed have basically been a smoke screen. Rates need to be higher not lower. Higher would have some effect on the price of oil that is inflating the price of almost everything. Some say that businesses do better with lower rates but if consumers can't make money on interest bearing accounts and the price of things get so high they have no dicretionary dollars and can't afford to go anywhere then what. The masses need help so they can spend.
4-30-2008 @ 8:31AM
Di said...
I have been trying to take out money from time to time..no point in being in a bank at 1% interest and I think of the elderly who rely on interest returns. The credit card industry and the mortgage industry have not cut rates..