Fed’s Latest Rate Cut May Be Last for a While

The Federal Reserve’s decision yesterday to cut a key interest rate by a quarter of a point may be the final rate decrease for the time being, bringing an end to a series of cuts since September.  The latest cut brought the federal funds rate to 2 percent. The Fed began lowering rates in September in an effort to aid the sputtering economy. While concerns about slowing economic growth and a possible recession remain, the Fed signaled that fears of inflation and devaluation of the dollar may necessitate a pause in the cutting.  The quarter-point rate decrease was more modest than the half point cut at the Fed’s previous meeting on March 18, but according to Gary Gabriel, executive director of the capital markets group at real estate services firm Cushman & Wakefield Inc., even the quarter-point cut was seen as too much for some.  “The cut was expected but perhaps not welcome by some,” noted Gabriel (pictured). “Those with an eye toward inflationary pressures are less than enthusiastic.” Among those with such concerns were two members of the Fed’s Open Market Committee who voted against the rate cut. Those members—Richard Fisher of Dallas and Charles Plosser of Philadelphia—also voted against the March’s rate cut. Gabriel said the Fed’s indication of a pause in the cuts was the result of both inflation concerns and the fact that using rate cuts to spur a sluggish economy is only effective to a point. “At some point, you can cut no lower, and … in past times of market stress using the rate lever didn’t have positive long term results.”  While the direct economic effect of the cuts on the economy is uncertain, Gabriel said the psychological boost given to the market is often just as important. The stock market surged in the wake of yesterday’s announcement, but retreated by the end of the day and ended with a loss, likely due to concerns about inflation. The Fed’s next meeting is scheduled for June 24.