Ex-Fed President McTeer Questions Feds Timing

This morning on CNBC, former Dallas Fed President McTeer made a very important point about the recent history of the Fed.  If you look at the fact that Crude Oil has just jumped by well over $10/bbl since yesterday mornings imprudent comments by ECB Governor Trichet, and that the Euro is now stronger against USD than when Bernanke spoke on Tuesday, it is painfully clear that at 2%, the Fed has set the Fed Funds target rate too low.  At this level, real rates are negative and this is fueling runaway commodity prices.

McTeer speculated that if the Fed had undertaken non-rate cutting measures earlier – creating the extraordinary lending facility and opening the discount window to investment banks – they would not have had to cut the Fed Funds rate so far.   There were many calls at the time to do just that.  Stop cutting rates, but do something else more targeted at the credit crunch.  Because they did not, we are all going to pay the price at the pump and at the grocery store.

The problem can be solved quickly if the Fed and the ECB work in cosultation with each other.  The problem will get worse, with grave consequences for several billion people, if they continue to work at cross-purposes as they have this week.  That is unconscionable.

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