Stardate 20011003.0439 (On Screen): Last year the Fed was concerned about the fact that the economy was running hot, and feared a resurgence of inflation. To preempt that, they raised rates again and again, and it's now generally recognized that they went too far and helped precipitate the downturn we're now in. Since January they've cut interest rates in half, and yesterday they issued another one of their nifty half-point drops. I think they're overdoing it again. The conditions we're in now, and the decline we're about to face, are not being driven by monetary conditions and I don't believe that the Fed is capable of affecting it. But when the recovery does come, if interest rates are too low then it will be necessary for them to raise rates again back to something like the historic norm and that could actually choke off the recovery due to the psychological effect of the rise. I honestly think that it would have been more of a confidence builder if yesterday the Fed had announced no change in interest rates at all. In many ways, stability is more important than the actual rate. When the Fed is moving things around as much as they have been recently, it makes it hard to do long term planning. If they're willing to cut interest rates in half in 9 months this year, will they be willing to double them in nine months next year? That tends to make companies bring their horizons in and operate only for the short term, which is not good for the economy.
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