Tuesday, September 18, 2007

Why The Fed Shouldn't Cut Interest Rates

Via Greg Mankiw I see this interesting article from Allan Metzer of the American Enterprise Institute.

While it seems nearly certain that the Fed will cut interest rates later this evening, Metzer points out that it risks creating a return to the stagflation of the 1970s. I agree. As I've pointed out repeatedly, the sky-rocketing commodity prices and falling dollar will contribute to an increase in the U.S. inflation rate to 4% by October or November. If the Fed decides to push through agressive rate cuts like they did in 2001, that level could be made permanent or even go even higher than that.


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