And then there’s [still] the economy…
[John Robb’s Radio Weblog]: WSJ. Inside the Fed, deflation is drawing a closer look. In response, the Fed went all out with a large 0.5% rate cut this afternoon. The Fed can go no lower. It has stimulated us to the extent of its powers.
Some would say (count me in that camp) that the Fed’s actions to date have been akin to “pushing on a string.” Why? The Fed’s rate cuts alone weren’t sufficient to reverse the slide. The combination of 9/11, the stock market collapse, and corporate mismanagement proved to be too much. It needed help from the administration to build consumer confidence, keep budgets in line, and stimulate the economy. It didn’t get that help. In fact, the administration did the opposite.
Now, the Fed’s power is spent. All that stands between us and a deflationary black hole is Bush and some luck.