Bernanke to the Rescue?

by: Dr. Scott Brown

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

Some critics may fault the Fed for being “behind the curve” – however, the Fed began cutting rates in September, while real GDP growth for that quarter was 4.9%. Prior to last summer’s liquidity crisis, data were reflecting a moderation in the rate of decline in home sales and residential construction activity. Financial conditions improved after the Fed first cut rates in September and through October. However, financial conditions took a turn for the worst in November and early December. Conditions have improved significantly into early 2008, but are not back to “normal.”

The consumer outlook has become more troubled. Consumer spending will be restrained by the impact of higher energy prices, lower home prices, and a declining stock market...

Bernanke signaled that the Fed is prepared to address increased downside risks to growth. The use of the word “substantive” implies more than a 25-bp cut. One thing could prevent the Fed from easing more aggressively: a deterioration in the inflation outlook – and inflation expectations, in particular.

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