Spread this message with Digg, Del.icio.us, Reddit, or Stumbleupon, and subscribe to the RSS Feed to track articles

Federal Reserve Board Still Undecided

Published 09/05/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

The consistent indecision of the Federal Open Market Committee seems to be endless, as board members remain split as to whether they should raise key interest rates, according to MarketWatch.

Janet Yellen, president of the San Francisco Federal Reserve Bank, believes that the FOMC should maintain key rates at the current 2 base-point level. Her contention is that inflationary pressures will wane as oil and food prices fall from their mid-summer records. Richard Fisher, president of the Dallas Federal Reserve Bank, believes otherwise and contended that the FOMC needs to rein in the money supply by increasing key rates, which would stave off inflation.

There is little doubt that the U.S. is in recession. The real question for policy-makers is what should be done about it. Many believe that raising key rates will only further dampen economic growth prospects and result in increased stagnation. Others feel that an increase in the federal funds rate will help stabilize the economy by constricting the money supply and reducing the confidence-gouging effects of inflation.

With the economy struggling and unemployment numbers increasing, the American people should demand more from their leaders than indecision. In a volatile marketplace, we are taking an incredible risk by following Yellen’s plan. Those who argue that prices will fall on their own, and that there is no need to constrict the money supply, are approaching economics by “hoping for the best” yet they are not “preparing for the worst.”

On the other side of the debate, the banking and financial industries are already in shambles. Increasing key rates could make their businesses more expensive at a time when their profitability is already severely undercut. Fisher’s plan to constrict the money supply could deepen the crisis as opposed to restraining it.

Having said this, the U.S. cannot rely on the hope for cheaper commodities or economic growth when it has become unproductive and non-competitive in the global marketplace. The FOMC should look to a more proactive stance, instead of their incessant fence-sitting.

Source MarketWatch:

Two senior Federal Reserve officials differed sharply Thursday on whether the economic slowdown and the recent drop in the price of oil and other commodities would cool inflation in the months ahead and allow the central bank to avoid raising interest rates.

…

Over the past year, as the housing slowdown and credit crunch have undermined economic growth, the Fed has cut its key rate to 2% from over 5%. But even as the economy has slowed, worrying signs of inflation have emerged and some Fed officials have argued that rates need to be raised.

…

Yellen has been one of the Fed officials who have said they expect inflation to trend lower in coming months given the unwinding of some of the run-up in gasoline prices and the cost of other commodities. In addition, they believe slower output dampens inflationary pressure.

Click Here For Solutions To America's Economic Problems:

Click here to contact your Representative in Congress.

Unless the above article is already copyrighted, this article is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License, EIC grants permission to use this article in whole or in part provided attribution is given, preferably in the form of a link back to EconomyInCrisis.org.