Fed caught between inflation and jobs

Published: Aug. 4, 2008 at 9:56 AM
Senate committee examines financial market developments in Washington

WASHINGTON, Aug. 4 (UPI) -- The U.S. Federal Reserve Bank's policy makers are mired in a classic standoff between inflation and jobs, analysts said.

While financial concerns are struggling with problems in mortgage-related securities, the standard formula to restore liquidity in financial firms is for the Fed to lower interest rates -- as they did seven times from September to April, lowering key rates to their current level of 2 percent, USA Today reported.

The jobless rate also rose last month to 5.7 percent and lowering rates can put more liquidity into banks and then into companies, which often stimulates hiring.

But, a boost to spending also encourages inflation, which rose 5 percent in June over the previous 12 months, its fastest rate in 17 years, the newspaper reported.

Members of the Fed's Open Market Committee, which votes on interest rates, "are very uncomfortable," Kim Rupert, managing director of Action Economics told the newspaper.

Many analysts say they expect the Fed to take a wait-and-see approach at their next meeting, which begins Tuesday.

The Fed likely will start raising interest rates in 2009, when the economy is "weak, but not getting weaker," Conrad DeQuadros of RDQ Economics told the newspaper.

© 2008 United Press International, Inc. All Rights Reserved.
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