Consumer May Benefit from Fed Rate Pause

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CBNNews.com - Consumers should be able to expect some relief from soaring prices now that the Federal Reserve has cut interest rates yet again.

But that hasn't been the case after seven straight months of rate cuts.

During that time frame, the value of the dollar has stumbled, oil prices have skyrocketed and many say the economic outlook is still grim.

One problem seems to be that banks are reluctant to loan out money in the wake of the housing slump and credit crunch.

Still, some economists say that the economic woes would be far greater without the Fed's intervention.

"With the Fed on hold and the dollar firming, oil and gasoline and food prices may all top out some time in the next few months," Mark Zandi, chief economist at Moody's Economy.com, told The Associated Press.

The reduction on Wednesday was a much smaller quarter-point move - not the half-point and three-fourths-point moves of earlier this year. It pushed the federal funds rate down to 2 percent.

That may be as low as consumer rates go. The central bank believes it may have done enough to keep the economic slowdown from deepening into a recession.

"The Fed may have gotten to the point where it could start hurting economic prospects in terms of the value of the dollar and oil prices and grain prices," said Sung Won Sohn, an economics professor at California State University. "It think it was time for the Fed to slow down and take a pause."

Without further rate cuts, the dollar can be expected to stabilize and possibly rebound from the record lows against the euro and other currencies.

That should help various commodities, including oil and food, to backtrack from their recent record highs -- a process that may have already started.

Source: The Associated Press

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