Fed Decision on Key Rate Presents Risks Either Way

Washington Post (04/30/08) P. D1; Irwin, Neil
The U.S. Federal Reserve is set to decide whether to cut interest rates for the seventh time in seven months. There is no obvious course of action for leaders of the central bank, with major risks no matter what they do. Federal Reserve observers expect the central bank is likely to cut the federal funds rate by a quarter percentage point to 2 percent, accompanied by a statement that it is inclined to hold off cutting rates any further if there are no new negative surprises for the economy or financial markets. "There are still enough problems out there for them to be concerned about the risks to growth," said Peter Hooper, chief economist of Deutsche Bank Securities. "The odds aren't overwhelming, but they favor cutting further." Other analysts say that the Fed could forgo recent speculation and not cut rates but signal that it is ready to resume rate cuts if the economy or financial-market conditions worsen. A pause in rate cuts could allow the Fed to examine how the cuts and the fiscal stimulus have impacted the market., and would demonstrate the bank's resolve in fighting inflation. Meanwhile, the financial markets appear calmer with the stock market rising about 8 percent in April. However, if the Fed were to ignore expectations and leave rates steady, the decision would carry with it risks of its own, such as possibly leading financial markets to conclude that the central bank was becoming complacent about the slowing economy.