Editorial: For Fed, low rates, much gloom
Federal Reserve Board Chairman Ben Bernanke Credit: AP
If you had any doubts that our economy is in trouble, this week's announcement by the Federal Reserve should lay them to rest.
The Fed said the labor market had deteriorated and household spending flattened as "downside risks" grew. Overall, the Fed found, the weak outlook warrants keeping interest rates low -- probably near zero -- at least until mid-2013.
The decision makes sense, which is one reason stocks soared on Tuesday; the last thing we need now is for the cost of borrowing to go up. Yet the Fed announcement was also discouraging, and this realization may be one reason stocks gave up Tuesday's gains on Wednesday.
The Fed, after all, was affirming that things aren't going to get a lot better anytime soon. Plus, three members of the Fed's Open Market Committee, which sets rate policy, dissented from the majority decision. The trio wanted merely to affirm very low rates "for an extended period."
That may not seem like much of a difference, but it could signal that some at the Fed are fretting unrealistically about inflation. Their stance could make it harder for the nation's central bank to use the few remaining tools at its disposal to stimulate growth, and few other sources of help to avoid another recession are evident.
It's no wonder stock investors are jittery. Those investors are consumers, too, and a falling market can only inspire them to button up their wallets just when we need them to open wide. hN
