Fed may not raise rates due to Katrina - Yahoo! News
Fed may not raise rates due to Katrina - Yahoo! News: "WASHINGTON -After the Sept. 11, 2001, terrorist attacks on New York and Washington, the
Federal Reserve Board responded by slashing interest rates in a morale boost that spurred consumption. Since then, borrowing for both mortgages and consumer loans has soared to record highs amid a nationwide housing boom.
ADVERTISEMENT
The Fed's dilemma is this: Katrina may have slowed consumer spending, and another rate hike could compound that. However, Katrina's spike in oil and gasoline prices also poses an inflationary risk that is usually countered through hikes in the lending rate.
In addition, there's another wrinkle: If the Fed doesn't take a breather next week, it could be seen as insensitive at best, cruel at worst.
'Politically, I wouldn't raise rates on the 20th. Raising rates when you are trying to recover from a disaster like this is sending the wrong message,' said David Wyss, chief economist for Standard & Poor's in New York.
Working in favor of a pause, the Labor Department's consumer-price index for August, released Thursday, showed prices rising just .05 percent for consumer goods, below forecasts. Core inflation - excluding volatile food and energy price - remained at .01 percent, where it has been since May. This suggests higher energy prices are not stoking inflation, reducing the pressure on the Fed to raise interest rates in response."
Federal Reserve Board responded by slashing interest rates in a morale boost that spurred consumption. Since then, borrowing for both mortgages and consumer loans has soared to record highs amid a nationwide housing boom.
ADVERTISEMENT
The Fed's dilemma is this: Katrina may have slowed consumer spending, and another rate hike could compound that. However, Katrina's spike in oil and gasoline prices also poses an inflationary risk that is usually countered through hikes in the lending rate.
In addition, there's another wrinkle: If the Fed doesn't take a breather next week, it could be seen as insensitive at best, cruel at worst.
'Politically, I wouldn't raise rates on the 20th. Raising rates when you are trying to recover from a disaster like this is sending the wrong message,' said David Wyss, chief economist for Standard & Poor's in New York.
Working in favor of a pause, the Labor Department's consumer-price index for August, released Thursday, showed prices rising just .05 percent for consumer goods, below forecasts. Core inflation - excluding volatile food and energy price - remained at .01 percent, where it has been since May. This suggests higher energy prices are not stoking inflation, reducing the pressure on the Fed to raise interest rates in response."
posted by Blackgold at 5:40 PM
0 Comments:
Post a Comment
<< Home