Mbah, just to confirm, jadi kemungkinan besar akhir bulan ini akan ada
penurunan bunga the FED 0.5% lagi ya? Sorry OOT..Thx mbah
jsx_consultant <[EMAIL PROTECTED]> wrote: Bernanke to Cut Rates
Further, Faster as Inflation Concerns Ebb
By Craig Torres
Jan. 23 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has
decided inflation concerns have faded enough to let him cut interest
rates further and faster to keep the U.S. from tipping world
economies into recession.
``Now they are free to move very aggressively,'' said New York
University professor Mark Gertler, a research co-author with Bernanke
and policy consultant at the New York Fed. ``They want to avoid asset
panic. They don't want the declines to disrupt credit flows.''
The Fed's emergency rate cut yesterday signals a dramatic shift by
policy makers from inflation to growth concerns. It indicates they
now see a risk of lower home and stock values feeding back into
tighter credit conditions that threaten to choke off growth,
economists said.
A decline in oil prices, lower readings on expected inflation, higher
unemployment and slowing factory production all helped convince the
consensus-driven Federal Open Market Committee that they could both
maximize rate cutting and accelerate the pace.
Futures trading suggests the Fed might follow up with a cut of as
much as another half-point Jan. 30, bringing the decrease to 1.25
percentage points in just eight days. Such a reduction, forecast by
analysts including Jan Hatzius, chief U.S. economist at Goldman Sachs
Group Inc., and Dean Maki, managing director at Barclays Capital
Inc., would be the deepest since the Fed started using the federal
funds rate as its main monetary policy tool around 1990.
Improvisation Required
``Fighting inflation can follow a plan; combating weakness requires
improvisation,'' said Vincent Reinhart, former director of the Fed's
Division of Monetary Affairs. ``Now, they've switched gears'' and
``will keep easing'' until they sense the economy has reached a
turning point.
For Bernanke, 54, that's an about-face from the past five months,
when inflation formed the ballast of every policy decision, and
forecasts, not markets or near-term data, drove changes in interest
rates.
Until yesterday, the Fed had lowered the benchmark lending rate just
1 percentage point in the face of economic weakness, and had used
separate tools to deal with liquidity problems in credit markets.
The inflation-wary pattern of rate moves under Bernanke befuddled
investors who criticized the central bank for treating the symptoms
of tighter credit without diagnosing the eventual impact it would
have on the economy.
`Tame, Timid, Tardy'
``This should have been done months ago,'' said Steven Einhorn, vice
chairman of New York-based Omega Advisors Inc., a $5 billion hedge
fund, in response to yesterday's rate action. ``I have a lot of
respect for capital markets, and they have been unambiguous in their
view of the Federal Reserve: Up until now, every debt instrument out
there told you they had been tame, timid and tardy.''
Gertler, who co-wrote a series of papers with Bernanke on how asset
prices influence lending, said the Fed had good reason to rely on
tools other than monetary policy to address turmoil in credit markets
during the last five months of 2007, a strategy he termed
``masterful.''
In August, Fed officials reduced the cost of direct loans from the
central bank, and continued to fine-tune ways banks could use the so-
called discount window to boost the flow of credit to financial
markets. In December, the Fed introduced the term-auction facility,
aimed at distributing cash throughout the banking system, to remedy
the increasing wariness of financial institutions to lend to each
other.
Clues Lacking
As policy makers acted three times between September and December to
lower the federal funds rate, none of their statements suggested they
had begun a sustained campaign of rate cuts.
``They seemed to not fully understand the implications of the seizing
up of credit,'' said Einhorn, former head of global research at
Goldman Sachs. ``They weren't pre-emptive, and the capital markets
gave them ample evidence they were behind the curve.''
Gertler said the Fed could ill afford to move too quickly to cut
rates last year, with the economy growing 4.9 percent in the third
quarter, oil marching toward a record $100 a barrel and unemployment
below 5 percent until December.
Helicopter
If Fed officials had cut rates in August, ``markets would have been
screaming, `Helicopter Ben!''' Gertler said, a reference to
Bernanke's 2002 quip about fighting deflation with a ``helicopter
drop'' of money.
Gertler said ``the whole key'' to creating conditions for aggressive
easing ``is anchoring inflation expectations,'' even if that must
come at a cost of slower growth. ``If the Fed had dropped rates like
a rock at the first hint of bad news, they seriously risked the
danger of losing credibility,'' he added.
While the Fed has two mandates from Congress, low inflation and
sustained growth, current Fed officials have made stable prices the
essential condition on which their ability to offset growth risks is
based.
They tolerate monthly movements in the consumer price index. What
those measures mean to the public's view of future prices, a concept
economists call ``expectations,'' is what really counts.
``They have been closet inflation targeters,'' said Reinhart, now a
resident scholar at the American Enterprise Institute in Washington.
``Hence, they were grudging in delivering policy ease last year and
had trouble explaining their action.''
To contact the reporters on this story: Craig Torres in Washington at
[EMAIL PROTECTED]
Last Updated: January 23, 2008 00:14 EST
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