More on the Economy

This nugget was found on the comments page of the Economist.

I want to personally thank the Federal Reserve Board for punishing those of us responsible enough to be saving our money in order to save the idiots who squandered their money on risky loans they couldn’t afford. Nothing encourages responsible economic behavior like punishing responsible people to save irresponsible people from the consequences of their own mismanagement.

From the main article:

THE Federal Reserve slashed its benchmark interest rate by three-quarters of a percentage point to 3.5% on Tuesday January 22nd. The decision came at an unscheduled policy meeting—the next planned one was due on January 29th and 30th, when it was widely expected to reduce rates by half a percentage point.

The deepening gloom about the economy may well warrant such an aggressive response. But the timing is puzzling. There is more than a whiff of panic about slashing rates little more than week before a scheduled meeting.

In his short tenure the Fed’s chairman, Ben Bernanke, has only used scheduled meetings to make changes to the Fed’s main policy rate. That he was moved to act just a week before one will raise the suspicion that the Fed knows something that markets don’t. Nor is it only the timing that is troubling. The size of the cut also brings more fear than comfort. Even the Fed under Alan Greenspan, which cut rates from 6.5% to 1% in the early years of the decade, was never moved to cut by more than half a percentage point in a single go.

The meeting at the end of the month is still expected to go ahead and it seems unlikely that the Fed’s committee will convene only to sit on its hands. Futures markets are pricing in a further quarter-point cut on January 30th. Presumably the markets can manage to hold on until then.

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