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The Fed’s Golden Opportunity
By Mr Ethanol | April 24, 2008
CNNMoney:
The soaring price of crude oil isn’t good for most people, but it could spell opportunity for Ben Bernanke.
The Fed chief’s inflation-fighting credentials have been in doubt since he said in a 2002 speech that central banks could prevent deflation by dropping money out of a helicopter.
Since then, Bernanke’s critics have only been emboldened by the Fed’s aggressive response to the current credit crunch. While six rate cuts since last summer and expanded lending plans have helped forestall a broader financial crisis, they haven’t quieted skeptics who fear a sharp rise in inflation.
Some think the Fed is partly to blame for the spike in commodity prices since rate cuts have helped to weaken the dollar. Despite this, investors are betting the Fed will cut rates when it meets again next Tuesday and Wednesday.
But one economist believes Bernanke could reap huge benefits simply by standing pat. By holding the line on rates, the thinking goes, the central bank’s policy-making committee could send the prices of oil, gold and other goods tumbling - while serving a timely reminder that the Fed isn’t letting inflation out of its sights.
James Hamilton, an economics professor at the University of California, San Diego, says a decision to pause now could reverse some of the gains in commodity prices and bolster the value of the dollar.
Many reasons behind fuel price shock… continue reading.
Photo: Jim Young - Reuters - Landov.
Topics: BizOp, Energy, Ethanol, Gas, Legislative, Market, News, Oil |
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