The FOMC cut interest rates by another 1/4 point today. Here is the statement released after the meeting with my interpretation of its real meaning:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
We really didn’t have any good reason but the market was expecting it and we so hate to disappoint Wall Street.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
0.6% GDP growth will not get us reappointed to our cushy jobs at the Fed. We need households and businesses to spend money but they aren’t cooperating for some reason. That is probably due to the fact that the only people who can get a loan right now are people who don’t need one. Housing will bottom someday – we hope.
Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
Core inflation isn’t bad but apparently regular people have to drive and eat. Who knew? We think inflation might moderate someday, but damn if we know when since we don’t know what’s causing it. We actually have no clue when inflation will come down but we’re hoping and praying really hard.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
We’ve cut rates and we’re printing dollars like lotto tickets. We sure hope this works because we don’t have any other ideas.