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December 2, 2008 7:47:55 PM CST

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Wait on Rate Hikes Until Crisis Eases

Posted Sep 3, 08 5:55 PM CDT in Opinion,  Business 

(Newser) – Critics claim the Federal Reserve has been too eager to cut interest rates, and that lax policy has exacerbated inflation. But the Fed should hold its ground, Desmond Lachman argues in the American, until the housing and credit markets are clearly on the rebound. The credit crunch has prompted banks to compensate with higher spreads and tighter lending standards, which should offset inflationary concerns.

"The interest rates paid today by households and corporations are generally no lower than they were last August, when the Fed began cutting the federal funds rate," notes Lachman. Foreclosures and market stresses that threaten the US economy call for a "highly accommodative" policy. "The Fed should ignore its critics and refrain from hiking interest rates," he concludes.

Source American

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Federal Reserve Chairman Ben Bernake speaks during a Federal Reserve Bank of Chicago conference in Chicago, May 15, 2008.   (AP Photo, file)
Chart illustrating monthly change in the Fed interest rate.   (AP Photo)
A sign on a foreclosed home is shown in Antioch, Calif., Aug. 14, 2008.   (AP Photo, file)
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Given the very real downside risks to the US economy, the Fed should ignore its critics and refrain from hiking interest rates until there is clear evidence of stabilization in the housing and credit markets. - Desmond Lachman in the American

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credit crisis • Federal Reserve • US economy • housing market • foreclosure • inflation • interest rate • interest rate cut • lending practices • monetary policy


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