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: Nimoy inspired generations of sci-fi fans

add to favorites email to friend print save as pdf

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

Bribery 'hits 1.6 billion people a year'

Feb 27, 2015

A total of 1.6 billion people worldwide – nearly a quarter of the global population – are forced to pay bribes to gain access to everyday public services, according to a new book by academics at the Universities of Birmingham ...

How music listening programmes can be easily fooled

Feb 26, 2015

For well over two decades, researchers have sought to build music listening software that can address the deluge of music growing faster than our Spotify-spoilt appetites. From software that can tell you ...

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.