Not many were surprised by the Fed yesterday. It elected
to keep the rate of interest on hold for the third time in succession, and, in so many ways,
it seemed like a carbon copy of the last meeting.

The Fed has a hawk. Richmond Fed President Jeffrey Lacker has been a lone voice
among the other members, and has voted to raise rates at every meeting, when the
consensus was to keep them on hold. And yesterday’s meeting was no exception.
The Fed changed its working from last month, but only slightly. It told us that
“Economic growth has slowed over the course of the year,” as if we didn’t already know
that. “Going forward,” said the Fed, “the economy seems likely to expand at a moderate
pace.” So no news there then either.
What does all this mean? Many believe that the US rate of interest has peaked, and
no further rises are on the horizon. But Capital Economics has gone one better. “We still
anticipate that a much more substantial slowdown in GDP growth will force the Fed to
cut rates aggressively to 4.0% by the end of 2007 and probably further in 2008,” said the
esteemed economic consultancy.

© Investment & Business News 2013