Bernanke's bind

"The Fed, the falling dollar and the commodities boomTHE spirit of St Augustine hovered over the Federal Reserve this week. ?Oh Lord, let us stop cutting interest rates, but not yet,? is pretty much what America?s central bankers decided on Wednesday April 30th. The Fed?s governors cut their policy rate by another quarter-point, to 2%. But the accompanying statement gave a small hint that they may now pause. There are plenty of reasons to stop cutting. Real interest rates are now firmly negative. Although the housing market continues to contract, the economy is limping rather than slumping. According to initial GDP estimates released on Wednesday, output grew at an annualised rate of 0.6% in the first three months of the year?the same pace as in the previous quarter and faster than most people expected. The mix of growth was not good. Final sales fell while firms built up their stocks, which bodes ill for future output. But with tax-rebate cheques arriving in the mail, a dose of fiscal stimulus is imminent. ..." (2008-5-1)

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