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2008年5月 3日 (土)


Fed faces tough balancing act on policy

FRB利下げ 難しい舵取り続く金融政策(52日付・読売社説)

The Yomiuri Shimbun

The latest action taken by the U.S. Federal Reserve Board apparently reflects even clearer indications that the U.S. economy is slipping further while inflation still remains at a level that needs attention.


This means the Fed faces even greater difficulties in deciding what kind of monetary policy should be adopted under the circumstances.


The Fed on Wednesday trimmed the federal funds rate, or its key short-term target rate, by 0.25 percentage point to 2 percent per annum.


This is the seventh rate reduction since September and marks a total decrease in the rate of 3.25 percentage points.


If the inflation rate is deducted from this, the annualized rate of 2 percent is actually negative.


This means the U.S. central bank has demonstrated its resolve to arrest an economic slowdown and contain the financial turmoil stemming from the subprime loan crisis by lowering the rate to such a level.


However, the latest rate reduction is smaller than the 0.75 percentage point cut in March.


The Fed's action appears to signify an attempt to contain the risks of both recession and inflation.


Problems on many fronts


The U.S. gross domestic product only grew an annualized 0.6 percent in real terms in the opening quarter of 2008.


This low rate of growth has resulted from a drastic reduction in housing investment and sluggish personal consumption.


This is the first time in 17 years that the U.S. GDP growth rate has come in below 1 percent for two straight quarters.


Some economists warn that the U.S. economy has already entered a recessionary phase.


Although the financial turmoil is showing signs of a gradual calming, losses at financial institutions in the United States and European countries may continue to grow.


It seems more time will be needed before the subprime loan problem settles down.


Meanwhile, there is growing cause for concern about inflationary pressure due to the increasing prices of gasoline and food.


A major factor behind these price hikes is speculative money flowing into crude oil and grain markets in the search for better investments. Some analysts point out this is a side effect of a loose monetary policy.


Potential world danger


The Fed did not provide details of its future policy in its latest statement, but some economists believe the central bank is winding down its credit-easing campaign because further cuts might accelerate inflation and the continued rate reduction has reached the limits of its capacity to stimulate the economy.



However, it might be too early to call this the end of the rate-cutting strategy.


It is believed that the Fed will remain determined to provide an underpinning for the economy in the form of interest rate cuts, first and foremost, if it feels there is an increasing danger of stagflation--the combination of recession and inflation.


In fact, the U.S. government is implementing front-loaded income tax cuts as an economic stimulus measure, but the impact this might have on spurring consumption is still unknown.


If the U.S. economy weakens further and there is a protracted recession, it will adversely affect the world economy, causing a potential deceleration of economic growth in emerging countries in Asia and other parts of the world, including China and India.


The Fed cannot afford to overlook the potential for such a situation to develop.


(From The Yomiuri Shimbun, May 2, 2008)

(May. 2, 2008)

2008520152  読売新聞)


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