Tuesday, December 13, 2005

Feds expected to boost rates by a quarter-point

Fox News

WASHINGTON — The Federal Reserve is expected to hike interest rates another quarter point today. But after 18 months in which the Fed has been pushing rates higher to keep inflation under control, the central bank appears to be getting close to the end of its rate increase campaign.

However, there is a divergence of opinion among economists on just when the rate increases will cease. One group thinks the Fed will stop after two more rate increases, while analysts who are more worried about inflation think the central bank could raise rates perhaps four more times.

"The Fed is looking at an economy right now that is growing strongly with upside risks to inflation," said Lyle Gramley, a former Fed board member and currently senior economic adviser at Schwab Washington Research Group, a financial advisory firm.

"... is growing strongly with upside risks inflation"

How often have we heard these words uttered from Alan Greenspan? "The economy is strongly recovering"

Tell that to General Motors and Ford... Kodak... Sony... and all the other companies that had to do massive layoffs and/or went out of business because they could not afford to keep operating in the consumer could not afford to keep buying products.

The federal government treats the interest rates like it is a totally separate entity from everything else. Every time that the interest rate goes up, it causes a cascading effect in the economy.

  • state and local governments suffer because of increased on operating expenses and lower tax base thus forcing them to raise taxes and fees to compensate

  • overall operating expenses on businesses are increased, forcing businesses to reduce operating costs and lay off employees as well increasing the price of goods and services

  • the price of fuel increases make it more expensive to get goods to market and the cost is passed on to the consumer

  • resulting in massive layoffs, businesses closing

  • consumers being tighter on the dollar purchase less which forces more layoffs and business closures

  • state and local governments again feeling the pinch from lack of revenue, raise taxes and fees again to compensate (citing the example when Oregon was the top in unemployment in the nation)

  • So could somebody please explain to me how making things more expensive is actually a good thing.


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