The following is from the Feb 6, 2008, edition of The Dallas Morning News. Al Niemi, dean, SMU Cox School of Business, and Mark Vamos, business journalism professor at SMU, provided expertise for this story.
By Cheryl Hall
Last week, when the Federal Reserve lowered its discount rate to 3 percent, there was one dissenter: Dallas Fed Bank President Richard W. Fisher.
Mr. Fisher still hasn't explained why he voted against the half-point slash, but a recent speech indicates he's worried about planting the seeds of inflation that "can lie fallow for some time, then suddenly burst through the economic top soil like kudzu, requiring a near toxic dose of countermeasures to overcome."
I asked some of my best sources who watch the economy and interest rates if Mr. Fisher is right to worry. Are interest rates at appropriate levels or has the Fed gone too far or not far enough? . . .
Al Niemi, dean, SMU Cox School of Business: "If I had to vote last week, I would have voted to lower rates. I am more concerned about the prospects of a recession than I am about inflation.
"With that said, I do appreciate Richard's longer-term concern over inflation. If money becomes too cheap and spending explodes, we could face inflationary pressures in the future.
"My long-term outlook is for a period of low inflation and low interest rates. In today's global economy, American labor has very little power to raise wages, and significant wage gains are generally the major force behind an inflationary spiral.
Mark Vamos, William J. O'Neil chair of business journalism at Southern Methodist University: "Every time there's a financial crisis, an inflection in the business cycle or some other event that has everybody looking to the Fed, you start reading stories asking whether the Fed has lost its mojo.
"This time it's – take your pick – the Fed doesn't have enough room left to cut, the Fed has moved too precipitously, the Fed has lost control over substantial portions of the money supply, there's going to be stagflation, the Fed can't cut too aggressively because foreign bondholders will bail out of U.S. debt, and on and on. But the market's conventional wisdom here is correct: Don't fight the Fed. Its policy actions on interest rates remain tremendously powerful.
"And there's still a lot of room left to for it to maneuver."
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