Economy Needs to Get Much Worse Before More Rate Cuts - Fed's Plosser

Includes: AGG, DIA, SPY
by: SA Eli Hoffmann

Philly Fed governor Charles Plosser says he already expects U.S. economic growth to slow to 1.5% or less, and says he would not support another interest rate cut unless the slowdown got even sharper than that. Speaking to the New York Times, Plosser, a non-voting governor, suggested he disagreed with the Fed's decision last week to lower the fed funds target to 4.5%, saying, "I happen to think this decision was a close call." Analysts say Plosser is not alone in his outlook. "This is one of the most hawkish committees that I can recall," Laurence H. Meyer of Macroeconomic Advisers and a former Fed governor, told clients. "The committee is not inclined to ease in December, and it is not convinced that any further easing will be required. However, the market simply refuses to hear it." Aside from last week's dissenting vote from K.C. Fed governor Thomas M. Hoenig, Another signal of internal dissent is the fact 6 of 12 Fed bank governors did not ask for a comparable 0.25% reduction in the discount rate, at which banks borrow from the Fed, assumed to be an implicit objection from non-voting members. Fed governor Frederic Mishkin was more vocal in his support of the rate cut, but agrees with Plosser that the Fed need not make more cuts, and emphasized Fed officials were focused on the country's economic outlook rather than on writedowns at big banks.

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