Tuesday, October 28, 2008

"Would another 50 basis points really help? Maybe not much. But I expect we're about to find out."

A good post by James Hamilton on Econbrowser:

"The Fed will probably vote for another 50-basis-point cut in the fed funds rate this week, bringing its target down to 1%. Here's why I think that would be a good idea."

1) Might help with TED spread.
2) No problem with inflation.
3) No problem with flight from dollar.

Here's my comment, but he didn't answer:

"Third, the primary worry that would prevent the Fed from cutting rates at the moment is the prospect of triggering a flight from the dollar. But the problems have clearly gone global now, with other central banks likely to cut as much or more as we do. I've been a little surprised at the flight back into dollars that those global developments seem to have instigated."

In essence, interest rates are lower here, but people are still moving money here. Is that correct? Is it because they feel we're a less risky investment, or is it seen as a way to shore us up?

If my question doen't compute, leave it.

Posted by: Don the libertarian Democrat at October 27, 2008 11:06 AM

Not for the first time a question of mine didn't compute.

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