ND Expert: Fed’s rate cut risky for future

Jan 23, 2008

With the biggest one-day reduction of interest rates in history announced Tuesday, the Federal Reserve’s attempts to resuscitate the U.S. economy could be a mistake, according to University of Notre Dame economist Nelson Mark.

“The rate cut doesn’t speak directly to the problem at hand, which is a seizing up of bank credit. Instead, I would have thought that the Fed would try to bolster confidence by acting as a lender of last resort and providing liquidity to the payments system,” said Mark, who specializes in international asset pricing and exchange rate economics.

The Federal Reserve dropped interest rates by three-quarters of a percentage point, to 3.5 percent.

“The headline inflation rate for 2007 was around 4 percent,” Mark said. “Setting the real Fed funds rate at 3.5 percent has a good chance of accelerating inflation in 2008, which could turn out to be a huge problem for the Fed down the road.”

Last year’s steadily rising inflation provided an environment in which companies could raise prices with relative ease.

“If we have another round of cheap credit that adds to consumer demand, we run the risk that firms will raise prices by even more in the future,” Mark said.

Source: University of Notre Dame

Explore further: Nuke lab workers recovering after being burned in accident

Related Stories

Scientists tackling Gulf of Mexico hypoxia

Feb 12, 2015

Bouncing along the edge of a field, Larry Berry points across the pasture toward a tree line marking the path of a creek bed. A small plastic shed sits atop a wooden platform on stilts.

Team to report on broadband wireless connection to moon

May 30, 2014

When can people expect to live and work in space? That is quite a question, but scientists are not afraid of asking yet another: assuming people are living and working in space, how are they to communicate ...

Recommended for you

Auditors: National Science Foundation suspends UConn grants

May 01, 2015

The National Science Foundation has frozen more than $2 million in grants to the University of Connecticut after a foundation investigation found two professors used grant money to buy products from their own company, Connecticut ...

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.