Fed expected to cut key interest rates again
Updated: 2008-04-30 16:50
Whatever the Fed does at the conclusion of this week's meeting, private economists believe it will leave the door open for further rate cuts, seeking to avoid the mistake made at the October meeting when it sent a pause signal, only to have to backtrack.
"They made a big mistake after the October meeting, implying that they would pause, and then had egg all over their face when they had to begin cutting rates aggressively because the economy weakened more than they thought and the credit crisis turned out to be more severe," said David Jones, head of DMJ Advisors, a private economic consulting firm.
While leaving the door open this time for further rate cuts if needed, the Fed may well be done, many analysts believe, if financial markets continue to improve and the economy starts to rebound with the help of the previous Fed rate cuts and 130 million economic stimulus payments, which started showing up in Americans' bank accounts this week.
While many economists believe the country is in a recession, the expectation is that it will be a short one ending this summer. If that turns out to be correct, the Fed may hold rates steady for the rest of this year with the next move being a rate increase sometime next year when the economy is on sounder footing.
"The Fed won't start raising interest rates until the unemployment rate has peaked and started coming back down," said Mark Zandi, chief economist at Moody's Economy.com. He said he was looking for the jobless rate, now at 5.1 percent, to climb to 6 percent early next year before starting to fall.
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