Sunday, May 25, 2008

No more Fedspeak on further interest rate cuts

By JEANNINE AVERSA, AP Economics Writer 33 minutes ago

Sounding a gong couldn't have made it clearer. Federal Reserve officials are putting out the word that further interest rate cuts are unlikely.

Fed Governor Kevin Warsh ditched the central bank's cryptic word tangles and actually waxed poetic. "Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again," Warsh said, referring to the Fed's key interest rate.

Speaking more central-bankerly, the Fed's No. 2 official, Vice Chairman Donald Kohn, said the current stance of interest-rate policy "appears to be appropriately calibrated for now." Janet Yellen, president of the Federal Reserve Bank of San Francisco, called the current level of rates "appropriate."

They are amplifying a signal sent by Chairman Ben Bernanke and his colleagues last month that the Fed's most aggressive rate-cutting campaign in two decades may be winding down — finally. The cuts started in September and take months to work their way through the economy.

That does not mean the economy, badly bruised by housing, credit and financial woes, is out of the woods. The Fed, though, is hoping its powerful doses of cuts, along with the government's relief plan of tax rebates and breaks will help lift the economy in the second half of this year.

Zooming prices for energy and food and other commodity prices are raising some concerns that inflation could take off. Further reductions in interest rates would aggravate the situation.

In fact, the Fed's last rate reduction in late April was "a close call," according to recently released documents.

Many economists believe the Fed will hold its key rate steady at 2 percent, a four-year-low, at its next meeting on June 24-25 and probably through much, if not all, of 2008.


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