Federal Reserve's target for the overnight lending rate is now "accommodative"

Discussion in 'Economics' started by ASusilovic, Mar 26, 2008.

  1. Charles Evans, president of the Federal Reserve Bank of Chicago, laid out a subtle argument Wednesday for why the U.S. central bank should step back from its aggressive interest-rate cuts.
    In a speech to the National Association of Business Economics in New York, Evans noted that the Federal Reserve's target for the overnight lending rate is now "accommodative" or at a level that should foster stronger growth.

    He noted that the effects of last fall's rate cuts are "probably just beginning to be felt," meaning that the steep rate cuts already in place "should do more to promote growth going forward."
    Evans is'nt a voting member this year of the Federal Open Market Committee, the Fed panel responsible for making monetary policy, but he participates fully in the discussions prior to the FOMC's formal votes to loosen or tighten policy.

    Since last September, the Fed has lowered the federal funds rate by three percentage points, to 2.25%.
    This reduction, equating to 57%, is the largest percentage reduction in any six-month period on record, according to Lyle Gramley, a former Fed governor and now an analyst with Stanford Group Co.

    Evans said that some of this large rate reduction should be regarded as insurance against risks of a sharp downturn, and he suggested that it didn't make sense to add an insurance policy on top of the insurance policy currently in force.

    "Part of our job as a central bank is to properly price these insurance premiums ... and if further policy adjustments become necessary, they need to take into account the insurance that is already in place," Evans said.

  2. Suss-------That guy doesn't have a clue. :cool: