Headline on CNN.com says “Fed chief’s new fear: Inflation“.
Ya think? Really? I wonder why inflation would be a concern? Would it maybe be because you lowered interest rates 1.25% in 8 days?
What blows me away too is how many people think this means their mortgage rates are dropping automatically, and proportionally. Guess what – they ain’t. Not for a good long while at least. Mortgage rates are usually based on the bond market, which is completely separate from the fed rate (the fed rate is just the rate that the government and banks charge each other for overnight loans, etc). Now since the bond market usually goes up when the stock market goes down…yes, home mortgage rates will probably dip a bit. But there isn’t a direct tie between them.
What blows me away about Bernanke though… He wants to lower interest rates AGAIN to try to stimulate the economy, but he’s a little concerned about inflation if he does. Does this guy think he’s working in a high school economics class project? It takes time for fed rate adjustments to turn into more cash in the economy. Even when you drop the floor out of the rate. And yes, dropping the interest rate that much in that short a time will give likely give us the wonderful combination of rapid onset inflation before we even see the economy actually get to recover.
I miss Alan Greenspan. :-(