Robert McTeer

You once said, Mr. Chairman, that we always make one move too many.

While a 4 to 4-1/2 percent real funds rate may have been appropriate earlier this year when the economy and productivity growth were much stronger and credit conditions were much easier, a lower rate is called for currently. Easing today would be awkward if not embarrassing because of our current bias. However, making an awkward right decision for the economy is preferable to making a face-saving wrong one.

[Note:  The Fed kept rates unchanged on Dec. 19, but announced an intermeeting rate cut two weeks later.]

Normally, I would agree with Bill Poole about intermeeting moves. I don’t think it’s a good idea to count on them very often. But the interval between our March 20th and May 15th meetings is a long one and we know, as does everybody else, that we’re probably going to cut rates further. To delay that gives a rather perverse incentive to the market that makes it more attractive to sell stocks in order to buy bonds. While I accept your point that it would be desirable for the stock market to get its legs on its own and not through action by the Federal Reserve, there is another thing to consider. And that is that we have just had two days of really good stock market performance.

So if we were to cut the target funds rate today, we couldn’t be accused of doing so because of the stock market. Later in this 10-day window, that may not be the case. We may get to the point where we want to cut the rate in the next 10 days and the stock market environment will make the Greenspan “put” come alive again. So, I was disappointed to hear that you didn’t want to make a move today. I think we really should cut the funds rate today.

The fact that we have almost an entire month before our next scheduled meeting is very significant to me.  I think it would be a terrible mistake to wait another month.