Fed: An Emergency Rate Cut

The Fed may cut rates between now and its scheduled meeting on March 18, according to Goldman Sachs.

The firm said it had previously expected the cuts to come later. Reuters reports "Goldman said the Fed would drop the benchmark federal funds target rate to 2 percent by late April, most likely in two 50 basis-point steps at the next two meetings."

An emergency cut now would be an excellent idea. The prices of oil and agricultural commodities are going up regardless of US interest rates. They are now part of a global demand cycle which operates, to some extent, separate from the US market.

With oil-based products and gasoline taking more of the consumer dollar, a relief on the credit side would be more than welcome. The problem the Fed has is that most banks are not passing lower rates on to businesses and consumers.

Unless the Fed adopts a position that it expends lenders to take some of the benefit of lower rates and move them to customers repeated cutting may benefit the balance sheets at embattled banks. What it does for the balance of the economy is unclear.

Douglas A. McIntyre