Readers join the Fed fray
Readers join the Fed fray
Untitled DocumentReaders’ Fed comments and questions
While we all wait for the FOMC announcement this afternoon, here are some of the questions and comments from readers about the Fed. Some have been edited for brevity.
“Do you think the Fed will lower interest rates due to the price of gas?”
Not a chance. If anything, those higher gasoline prices could eventually prompt a Fed rate increase, but it won’t come right away.
“Hi Greg, You say the Fed doesn’t want to throw ARM holders under the bus but they seem to have no trouble throwing savers under that same bus, running us over, backing up over us and running us over again! All the while telling us that inflation is low. Why is it that competent people always have to be shafted to help the incompetent?”
Just wait for the housing bailout.
“Interest rates seem to be rising over their own accord at least in the short term. Reducing the bond prices yet overall all interest rates are still relatively low. Is it correct in assuming the Federal Reserve is standing by to see the pop in the oil, which might allow them to take their hands off the interest rates “levers of browbeating” to avoid rate increases in the fall? If oil prices do fall by 1/4 to 1/2 per barrel, as recent energy traders suggest, would that be similar to flushing cash back into the economy, adding strength in the dollar, and act as greater cushion through increased purchasing power for consumers? Do you feel that interest rates will go up or down this fall irrespective of who wins the election?”
Any pronounced decline in oil prices would be greeted with a cheer from the Fed, as this would take the edge off inflationary pressures and do some of the Fed’s dirty work for them. It has been said that higher oil prices act as a tax on consumers, so a pullback in prices would certainly redirect a lot of cash into other discretionary purchases. This would provide a nice tailwind to economic growth because of the velocity of the money, as one person’s dinner out becomes the waitress’s tips, which becomes her discretionary purchase and results in a boost to someone else’s income down the line. And so on and so on.
A sharp pullback in oil prices would be just what the doctor ordered for the economy, but it is impossible to know which way oil prices go from here.
I think inflation, the economy and conditions in financial markets will have a far greater bearing on the level of interest rates than the election outcome.
Be sure to check back at Bankrate.com for the latest news following this afternoon’s Fed announcement.