One Half Of One Percent

THE BE YOUR OWN ECONOMIST ® BLOG

Today the Fed announced (http://www.federalreserve.gov/newsevents/press/monetary/20080130a.htm)
a one half of one percent reduction in the federal funds rate. The text of the Fed’s press release follows:

“The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

“Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

“The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

“Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks…...”

A comparison of this press release with earlier releases reveals a dramatic shift in the Fed’s priorities away from battling inflation toward forestalling recession.

Stay tuned.

© 2008 Michael B. Lehmann