A rate-cut paradox

GDP numbers indicate healthy economic growth. So why did Ben Bernanke stamp his foot on the accelerator pedal?


Andrew Leonard
October 31, 2007 10:48PM (UTC)

I'll bet it's not every day that the Commerce Department announces a quarterly GDP growth rate of almost 4 percent, and a few hours later the Federal Reserve declares a rate cut. It's usually the other way around: Strong economic growth encourages the Fed to "take the punch bowl away" and raise rates, not lower them.

But that's what happened on Wednesday. The most robust growth figures in a year and a half for the U.S. economy, accompanied by a tacit acknowledgment that real trouble still looms ahead.

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A more cynical way to explain the rate cut would be that the anxieties of Wall Street count for more than the nuts and bolts of what's happening in the real economy, but that's probably being too uncharitable. The GDP numbers offered Fed chair Ben Bernanke cover for staying pat. The Fed's choice to cut rates anyway is a strong negative signal.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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