On Tuesday and Wednesday, the Ferderal Reserve governors will meet to decide if another interest rate cut is in order. Even though most of Wall Street believes that we will see 25 point cut this week, followed by another 25 point cut at their next meeting on December 11, there are many mitigating issues that could lead to leaving the discount rate stable.
Merrill Lynch's huge $2.5 billion loss just reaffirms how big of a credit cruch we're in, but we're also seeing huge food and energy price increases coupled with a plummeting dollar. This leads the Fed to try to play the balancing act, trying to ease the credit crunch while also trying to curb inflation. Bernanke, known for his support of inflation targeting, might view the 50% increase in crude oil prices as one of many reasons to keep the rate stable, while others believe that maintaining a fluid market amidst this crisis will have to take precedence. Other important factors will be Unemployment, GDP, and Spending. Most are expecting unemployment to remain stable at 4.7%, while core inflation and growth remain small. Either way, you can chalk up the rest of 2007's America's economy to looking bleak at best.
Let's see what Bernanke and his boys do this week.
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