Will the Fed have to use monetary inflation to deal with an economic crisis?
*Reuters, by Jennifer Ablan, January 23, 2008
“Crisis Far from Over, Even with Emergency Cut
The Federal Reserve’s huge emergency rate cut on Tuesday did little to allay fears of a brewing U.S. recession even though panic selling in global stock markets has moderated.
The three-quarters of a percentage point cut in the Fed’s short-term interest rate target, to 3.5 percent, has helped restore some investor confidence, reflected in the rebound in many overseas stock markets.
Even so, many investors continue to brace for a recession. Major U.S. stock indexes closed down more than 1 percent after the Fed’s aggressive move, although they recovered from severe declines shortly after the market opening.
‘It’s simply now a consumer-led mild recession that will show up in the first- and second-quarter GDP numbers in the negative — with a minus sign,’ said Bill Gross, chief investment officer of Pimco, or Pacific Investment Management Co.
The slide in housing prices and the risk that consumers will close their wallets, if they have not already, are the bigger worries, he said in an interview with Reuters.”
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