Fed Might End Rate Cuts Soon as Inflation Concerns Take Stage

Investor's Business Daily (04/28/08) P. A1; Stoddard, Scott
Analysts expect the Federal Reserve to cut the federal funds rate by 0.25 percentage points to 2 percent at its upcoming meeting, but they think concerns about inflation could put a stop to the rate reductions. They point out that rate cuts have weakened the dollar and boosted oil and commodity prices. However, Moody's Investors Service chief economist John Lonski says, "The Fed would be making a mistake if it focused too intently on the price of oil and other commodities while assigning secondary importance to home price deflation and the continuing weakness of the U.S. economy." Experts note that rising food and oil prices have put a damper on consumers' purchasing power, while home-price declines eat into their wealth. Susan Phillips of George Washington University's business school believes the central bank could cut rates again if the economy declines further, noting that policymakers cannot step back before the housing and credit markets stabilize.