The Federal Reserve and lawmakers in Washington are trying to find ways to boost the economy. This week, the Feds unexpectedly slashed a key interest rate by three-fourths of a percentage point over rising concerns about a recession. Creighton University Economics Professor Ernie Goss says there’s a 50-50 chance they’ll make another interest rate cut next week.
"This is quite an aggressive federal rate cut," Goss says, "but if you remember January 3rd, 2001, they reduced rates – not as much as this – and even with that, we still went into a recession not more than two months later. So, even though they’re cutting rates, we’re still probably in for some slow economic growth and maybe even negative economic growth in the months ahead."
Goss says there are several drawbacks to slashing interest rates, which is why he disagrees with the assessment of Federal Reserve Chairman Ben Bernanke. "Last year, we saw the highest inflation rate the U.S. has experienced in 17 years, but Bernanke said the Fed is more comfortable that the rate cuts won’t push inflation higher and he’s comfortable with the current rate of inflation. Well, I think he’s dreaming," Goss said.
Goss believes the U.S. will enter a recession, but doesn’t think it’ll last too long. He says, "The last couple of recessions we’ve had have been very short and shallow. And I think this next recession will be likewise, simply because we’re getting ahead of this." On Capitol Hill, congressional leaders have struck a deal with the White House on a plan to boost the economy. The proposal would give most taxpayers refunds of $600 to $1,200, and more if they have children. Goss says he’s not very supportive of the plan.
He says it’s not clear that either the Federal Reserve rate cuts or economic stimulus plan will work. "But, you’re talking about mixing economics and politics during a presidential year…and of course, that doesn’t mix very well," Goss said. He says once the proposal receives final approval, it may be later this summer before taxpayers get a rebate check.