Fed rate cut stirs the pot, analysts said

WASHINGTON, March 19 (UPI) -- The U.S. Federal Reserve's 75-basis-point rate cut is likely to help investment banks and exporters at the cost of pushing inflation, analysts said.

It's a balancing act. While the rate banks use to loan each other money overnight dropped to 2 1/4 percent with Tuesday's Fed action, banks are granted some breathing room and restored liquidity. But the extra dollars available, once they reach consumers, also increase spending, which allows for inflation to escalate.

"The Fed has abandoned the one thing it can truly control -- the long-run increase in price levels," the former President of the Federal Reserve Bank of Cleveland Lee Hoskins wrote recently, The Washington Post reported.

"Creating more dollar bills will not add to the nation's wealth or make workers more productive," Hoskins said.

But, rate cuts also weaken the dollar, making exports more affordable. With emerging markets stronger and hungry for goods like cars, computers and heavy equipment, the weak dollar carries implied gains, analysts said.