It’s about time for the Fed to stop cutting interest rates, which have gone down by 3% to 2.25% in recent months. Beginning last fall, the Fed created a virtually risk free environment for speculators betting on the dollar’s decline, which in turn has created the frenzy in global commodity markets like oil. Now would be a pretty good time to change course, since there is not much more to be accomplished in the housing market and the macroeconomic outlook by tinkering with small cuts, and it’s past time to take away the punch bowl from the speculators. The WSJ has some background:

The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week…If it does cut rates, the Fed could signal in the statement accompanying the decision an inclination to pause and assess the impact of its cuts, which have lowered the federal-funds rate to 2.25% from 5.25% since last year…

For the first time in months, the economic outlook confronting officials will be little changed from their prior meeting. Economic data have confirmed officials’ expectation that the economy has likely entered a mild recession. Employment has declined for three straight months, home construction is plunging, and retail sales are weak.

Some things, such as food and oil prices, have gotten worse. Late Wednesday, Starbucks Corp. unveiled a weaker-than-expected estimate of fiscal second-quarter earnings and lowered its forecast for the year, with Chairman and Chief Executive Howard Schultz describing the economic environment as the “weakest in our company’s history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers.”

Oil prices earlier this week reached a new high in futures markets of just under $120 a barrel. Mr. Meyer says the latest $10 increase in the price of oil per barrel would reduce economic growth by as much as half a percentage point.

It can’t happen soon enough in our view that some of these traders have a NASDAQ 5000 moment.

This entry was posted on Thursday, April 24th, 2008 at 11:19 pm and is filed under business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.