August 09, 2004

Don't change the rate!

Alan Greenspan and his colleagues on the Federal Open Market Committee will be meeting tomorrow to talk about raising the short term rate about a quarter of point. However, this is a very bad idea:

1. Oil prices are close to hitting $45 a barrel and could cause another spike in gas prices. An increase in gas prices has a negative effect on businesses, and many will probably hold off spending in anticipation of raising gas prices.
2. Unemployment numbers are still not great. The last two unemployment reports have fallen short of analyses expectations.
3. Retail sales in June were below analyses expectations.

The Federal Open Market Committee should just keep the rates as they are and issue a warning that rates may increase in September. Remember its always easy to cool off a hot economy, but it takes a while to heat up a cool economy.