We have all read about the Fed minutes released yesterday and the song out there is pretty similar. We could be or are in or about to be in a recession. In other words, growth has slowed. No kidding. As I read it, something at the end struck me.
The vote the recent rate cut was 8-2. Here is the dissent.
“Fisher and Plosser dissented because, in light of heightened inflation risks, they favored easing policy less aggressively. Incoming data suggested a weaker near-term outlook for economic growth, but the Committee’s earlier policy moves had already reduced the target federal funds rate by 225 basis points to address risks to growth, and the full effect of those rate cuts had yet to be felt. While financial markets remained under stress, the Federal Reserve had already taken separate, significant actions to address liquidity issues in markets. In fact, Mr. Fisher felt that focusing on measures targeted at relieving liquidity strains would improve economic prospects more quickly and lastingly than would further reductions in the federal funds rate at this point; he believed that alleviating these strains would increase the efficacy of the earlier rate cuts. Both Messrs. Fisher and Plosser were concerned that inflation expectations could potentially become unhinged should the Committee continue to lower the funds rate in the current environment. They pointed to measures of inflation and indicators of inflation expectations that had risen, and Mr. Fisher stressed the international influences on U.S. inflation rates. Mr. Plosser noted that the Committee could not afford to wait until there was clear evidence that inflation expectations were no longer anchored, as by then it would be too late to prevent a further increase in inflation pressures.”
This goes back to what I said the other day. The best thing perhaps for the economy at this time may be holding rates steady to stop the fall of the dollar. The effect of that would be felt immediately at the pump and in the supermarket. Aside from that, with some clarity surrounding the dollar, commodity markets would then be forced to take its continued expected decline out of the pricing equation. To the contrary, to then price in an increase in the dollar would cause a immediate contraction in commodity prices..
This now looks to be the best course of action.
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