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This lesson focuses on the January 30, 2008, announcement by the Federal Open Market Committee on the current Federal Reserve monetary policy goals. This lesson is intended to guide students and teachers through an analysis of the actions the Federal Reserve is taking and can take in influencing prices, employment, and economic growth. An understanding of monetary policy in action is fundamental to developing a thorough understanding of macroeconomics and the dynamics of the U.S. economy. 

KEY CONCEPTS

Business, Business Cycles, Economic Growth, Factors of Production, Fiscal Policy, Full Employment, Government Expenditures, Investment, Macroeconomic Indicators, Production, Productive Resources, Productivity, Real vs. Nominal, Resources, Role of Government, Standard of Living, Tools of the Federal Reserve

STUDENTS WILL

  • Identify the current monetary policy goals of the Federal Reserve System.
  • Determine the factors that have influenced monetary policy goals.
  • Identify the policy options available to the Federal Reserve System to stimulate the economy.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

The Federal Open Market Committee (FOMC) of the Federal Reserve System (Fed) meets eight times annually, approximately every six weeks, to review economic and financial conditions, assess the risks to the nations' long-run goals of price stability, full employment and sustainable economic growth, and determine the appropriate stance of monetary policy.

The Federal Reserve influences the demand for and supply of the balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

This focus on economic data highlights the current FOMC announcement, explains the meaning of the report and the policy options of the Fed. Students will read and interpret the announcement, current and historical data, and discuss the impact of the policies on the overall economy and individuals.

Students will identify the current policy actions and evaluate the potential consequences for the economy.

MATERIALS


Key Economic Indicators

as of January 4, 2008

Inflation

Inflation CPI decreased by .67% in December 2007

Employment and Unemployment

Real GDP .7% annual rate of increase 1st quarter, 2007

Real GDP

0.7% annual rate of increase 1st quarter, 2007

Federal Reserve

The Federal Reserve lowered the target federal funds by a total of 1.25% in two steps, January 22 and January 30, 2008.

PROCESS

Reasons for a Focus on Economic Data on the Federal Open Market Committee

Following Federal Open Market Committee announcements, newspapers across the country have front-page stories about Federal Reserve actions to change the target for interest rates with a goal of either boosting spending and employment in the U.S. economy or slowing growth in spending and employment. The announcements often reflect serious concerns with the state and direction of the economy and recommend appropriate policy actions.

This focus on economic data is intended to guide students and teachers through an analysis of the actions the Federal Reserve is taking and can take in influencing prices, employment, and economic growth. An understanding of monetary policy in action is fundamental to developing a thorough understanding of macroeconomics and the U.S. economy.

[Note to teacher: The material in this lesson in italics is not included in the student version. This initial lesson of the semester introduces relevant concepts and issues. Subsequent lessons following FOMC announcements will describe the announcement and add concepts and complexity throughout the semester. This case adds an explanation of the discount rate and a comparison with the previous announcement.]

[NOTE: On January 22, 2008, the FOMC made an unscheduled announcement to lower the target for the federal funds rate by 75 basis points to 3 1/2 percent, in response to a worsening economic outlook and steep decline in world financial markets.]

The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.

The complete FOMC press release of January 30, 2008 is available at: www.federalreserve.gov/newsevents/press/monetary/20080122b.htm

January 30, 2008 FOMC Scheduled Announcement

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

The complete FOMC press release of January 30, 2008 is available at:
www.federalreserve.gov/newsevents/press/monetary/20080130a.htm

[NOTE: A 'basis point' is 1/100 of one percent. A 50 basis point change in an interest rate is the same as a change of .5 (1/2) percent. In this Focus on Economic Data, the federal funds rate change will be referred to as either basis points or as a percentage change.]

Why Cut Interest Rates?

On January 17, 2008, Federal Reserve Chairman Ben S. Bernanke testified about the economic outlook before the Committee on the Budget of the U.S. House of Representatives.

Bernanke said 'The Federal Reserve has taken a number of steps to help markets return to more orderly functioning and to foster its economic objectives of maximum sustainable employment and price stability. Broadly, the Federal Reserve's response has followed two tracks: efforts to improve market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy.'

The announcements of January 21 and 30, 2008, reinforced Chairman Bernanke's concerns.

January 22 - 'The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.'

January 30 - 'Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.'

What is the Federal Open Market Committee (FOMC)?

The primary function of the FOMC is to direct monetary policy for the U.S. economy. The FOMC meets about every six weeks. (The next meeting is March 18, 2008.) The seven Governors of the Federal Reserve Board and five of the twelve Presidents of the Federal Reserve Banks make up the committee. The staff of the Federal Reserve implements the recommended policies.

The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman of the Federal Reserve, for four-year terms.

The seven Board members constitute a majority of the 12-member FOMC. The other five members of the FOMC are Reserve Bank presidents, one of whom is always the president of the Federal Reserve Bank of New York. The other Bank presidents serve one-year terms on a rotating basis. Traditionally, the Chairman of the Board of Governors serves as the Chairman of the FOMC.

Guide To Announcement

The first paragraph of the Federal Open Market Committee announcement summarizes the current monetary policy change - this month it is the decision to keep the target constant. The FOMC decreased the target federal funds rate by .75 percent on the 22nd and another .5 percent on the 30th.

A brief summary of the reasoning behind the decision is presented in the second and third paragraphs. The second paragraph of the January 30 announcement states that the Committee 'took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.'

The third paragraph refers to the expectation of some inflation in the coming months, and the committees intent to make sure inflation does not become a more significant problem. In recent years, Fed policy has primarily focused on maintaining price stability. 'The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

The fourth paragraph looks forward, stating that 'downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk.'

The next paragraph reports the vote for the policy. Most decisions are unanimous. On January 30, there was one dissenting vote, a member who believed that no change was warranted at that time.

The last paragraph reports the Board of Governors approval of a 50-basis-point decrease in the discount rate to 3-1/2 percent. Recent Board policy has been to keep the discount rate consistent with the federal funds rate.

Data Trends

The FOMC used policies actively throughout much of the 1990s and the last seven years. The FOMC lowered the target federal funds rate in a series of steps beginning in July of 1990 until September of 1992, all in response to a recession beginning in July of 1990 and ending in March of 1991. See figure 1 showing changes in the target. (The periods of the 1990-1991 recession and the 2001 recession are shown in gray on the graph.)

figure1

Then as inflationary pressures began to increase in 1994, the Federal Reserve began to raise rates. In response to increased inflationary pressures once again in 1999, the Federal Reserve raised rates six times from June 1999 through May of 2000. Those changes are obvious in the graph.

Growth began to slow at the end of 2000. The slowing growth was one indication of the need for a change in monetary policy that would boost spending in the economy. The FOMC responded by cutting the target federal funds rate throughout the year. The recession began in March of 2001 and ended in November of 2001. The target federal funds rate was lowered in January of 2001 with the last of the direct series of lower rates ending in December of 2001. (Two more decreases followed – one in mid-2002 and a second in mid-2003.)

Then as the economy began to recover from the recession and the FOMC turned to concerns that the economy did not need as much stimulation, a series of increases in the target were undertaken and continued until June 2006. The FOMC kept the fed funds rate steady at 5-1/4 percent in its next two meeting in June and August, 2007.

In September, 2007, the FOMC decreased the target by 50 basis points to 4-3/4 percent, saying, Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.' This was the FOMC's first action response to the deepening housing and credit crisis.

At its October 30 meeting, the FOMC lowered its target for the federal funds rate 25 basis points to 4-1/2 percent. The statement included, 'Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

In December, 2007, the FOMC lowered the target by another 25 basis points to 4-1/4 percent, stating, 'Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.'

Clearly, these actions were not adequate to forestall the downturn, and the FOMC lowered the rate by a total of 1-1/4 percent in its two January, 2008, meetings. See the January statement at the beginning of this lesson.

Table 2 illustrates the level of the federal funds rates from 2005 through January 2008.

Monetary Policy Tools of the Federal Reserve

Banks earn profits by accepting deposits and lending part of those deposits to someone else. They sometimes charge fees for establishing and maintaining accounts and always charge borrowers an interest rate. However, banks do not lend all of their deposits. Banks are required by the Federal Reserve System to hold a portion of their deposits as reserves in the form of currency in their vaults or deposits with Federal Reserve System.

Open Market Operations

The Federal Reserve buys and sells government securities and by doing so, increases or decreases banks' reserves and the banks' abilities to make loans. As banks increase or decrease loans, the nation's money supply increases or decreases. That, in turn, decreases or increases interest rates. The purchase and sale of bonds by the Federal Reserve is called 'open market operations.' The Federal Reserve is 'operating' by buying or selling securities in the 'open market.'

When the Federal Reserve sells a bond, an individual or institution buys the bond with a debit on their account and transfers the funds to the Federal Reserve. The Federal Reserve removes an equal amount from the customer's bank's reserves. The bank, in turn, removes the same amount from the account of the customer who purchased the bond. Thus, the money supply decreases and interest rates increase.

The opposite occurs when the Federal Reserve buys a bond. The Federal Reserve gives funds to the seller of the bond. The seller deposits the funds in their account. Their bank adds the amount to deposits and thus the money supply increases. The bank also presents the funds back to the Federal Reserve, which in turn adds the amount to the bank's reserves. Because the bank has to keep only a portion of those reserves, the bank can make loans with the remainder. Thus the money supply expands even further. As banks make more loans, interest rates fall.

Open market operations are the primary tool of the Federal Reserve. It is a tool that is often used and is quite powerful. This is what the Federal Reserve actually does when it announces a new target for the federal funds rate. The federal funds rate is the interest rate banks charge one another in return for a loan of reserves. If the supply of reserves is reduced because the Federal Reserve has sold bonds, that interest rate is likely to increase. If the supply of reserves is increased because the Federal Reserve has purchased bonds, that interest rate is likely to decrease.

The Discount Rate

The Federal Reserve FOMC announcement refers initially to the change in the federal funds rate target. The announcement may also include a change in the Fed's discount rate.

The discount rate is the interest rate the Federal Reserve charges banks if banks borrow reserves from the Federal Reserve itself. Banks may need to borrow reserves if they have made too many loans, have experienced withdrawals of deposits or currency, or have had fewer deposits than they expected. Banks can borrow reserves from the Federal Reserve or from other banks.

In reality, banks seldom borrow reserves from the Federal Reserve and tend to rely more on borrowing reserves from other banks when they are needed. They will still pay an interest rate (the federal funds rate), but that is a rate determined in the market for reserves and influenced by the open market operations of the Federal Reserve.

From 2003 until mid-August 2007, the discount rate was almost always 1.0 percent above the federal funds rate. From August 17, 2007 until the current FOMC announcement rate, the discount rate has been ½ percent higher than the federal Funds rate.

Figure 2 shows the discount rate along with the federal funds rate. Notice that the discount rate typically changes along with the target for the federal funds rate.

figure2

Reserve Requirements

Banks are required by law to hold a portion of some of their deposits in what are called reserves. The portion varies depending upon the type of deposits and the size of the bank. Most are required to have either 3 or 10 percent of their deposits on reserve, depending on the size of the accounts. Reserves consist of the amount of currency that a bank holds in its vault and the bank's deposits at Federal Reserve banks. The required reserve is the portion of a bank's deposits that cannot be loaned to other customers.

If banks have more reserves than they are required to have, they can increase their lending. If they have insufficient reserves, that is, less than they are required to have, they have to curtail their lending or borrow reserves from the Federal Reserve or from another bank. If another bank has more reserves than they are required to maintain, those extra reserves are called excess reserves. The reserve requirement is seldom changed, but it has a potentially very large effect on the ability to make loans and thus on interest rates.

If the Federal Reserve were to increase the reserve requirements, banks would have to curtail loans and the money supply would shrink. If the reserve requirements were lowered, banks would have excess reserves and they could increase the amount and number of loans they make.

[Note to teacher: For more background on the Federal Reserve's monetary policy responsibilities, go to: www.federalreserve.gov/monetarypolicy/default.htm . For links to Federal Reserve monetary policy teaching resources for use in the classroom, go to http://federalreserveeducation.org .]

How Does Monetary Policy Work?

Monetary policy works by affecting the amount of money that is circulating in the economy, the level of interest rates, and changes in spending. The Federal Reserve can change the amount of money that banks are holding in reserves by buying or selling existing U.S. Treasury bonds. When the Federal Reserve buys a bond, the seller deposits the Federal Reserve's check in her bank account. The bank's deposits and reserves increase. The bank then has an increased ability to make loans, which in turn will increase the amount of money in the economy.

Competition among banks forces interest rates down as banks compete with one another to make more loans. If businesses are able to borrow more to build new stores and factories and buy more computers, machines, and tools, total spending increases. Consumer spending that partially depends upon levels of interest rates (automobile and appliances, for example) is also affected. Output will likely increase as spending increases. In this case, unemployment will fall. There may also be some upward pressure on prices.

When the Federal Reserve adopts a restrictive monetary policy, it sells bonds in order to reduce the money supply. This results in higher interest rates and less spending. A restrictive monetary policy will decrease inflationary pressures, but it may also decrease investment spending and cause real gross domestic product to decrease or to increase more slowly.

[Note to teacher: See the most recent Inflation focus on economic data for a more detailed discussion of the price level and inflation.]

Time Lags of Monetary Policy Actions

Press coverage of FOMC announcements often refers to what is happening to current inflation and changes in production. Monetary policy is not instantaneous in its effects. The process just outlined takes time to work its way through the economy. The FOMC realizes this and pays attention to current data only as a means of forecasting what is going to happen in the future. One should be cautious in forecasting exactly when a change a monetary policy will begin to have its full effects as those time lags vary. However, a working rule might be that a change in monetary policy will have its nine to twelve months from the time it is initiated.

Businesses and consumers do not normally change their spending plans immediately upon an interest rate change. Businesses must reevaluate, make new decisions and order reductions or expansions in production and expenditures. This means that months pass before spending is affected. Monetary policy typically has a short policy lag (the time it takes to create and implement policy) and a long expenditure lag (the time it takes businesses and consumers to adjust to the new interest rates). The total lag time is usually 9-12 months and varies a good bit. Thus when the Federal Reserve changes interest rates now, their decisions will affect economic conditions in approximately a year from the time of the change.

Comparison of Monetary and Fiscal Policy

The FOMC uses monetary policies to react to a slowing economy by expanding the money supply, lowering interest rates, and thus encouraging increased spending. The FOMC reaction to increasing inflationary pressures is to decrease the money supply, raise interest rates, and thereby slowing growth in spending.

Another set of policy options, fiscal policy, is the taxing and spending policies of the federal government. Those policies also have the potential to influence economic conditions whether deliberately or as an unintended consequence of changes in taxes and spending adopted for reasons other than to influence economic conditions. If the economy is entering a recession, fiscal policy response might be to increase government spending and to lower taxes. If spending in the economy is growing too rapidly, the fiscal response might be to decrease government spending and to increase taxes.

In those processes, there will be debates in Congress about what to do with spending and taxes in order to stimulate or slow overall spending in the economy. These debates normally take a substantial amount of time. This lag points to one of the key differences between fiscal and monetary policy. Fiscal policy is much more difficult to implement but once the decision is made, it can have an effect quickly. Monetary policy decisions are much easier to institute and more responsive to economic conditions, but may actually take longer to change spending once the decision is made.

Fiscal policy (changing taxes and government spending) also has a significant lag time. It typically has a long policy lag (the time it takes Congress to approve a tax or spending change) and a short expenditure lag (the time it takes consumers to experience the tax changes and government to change spending). The combined lags may be anywhere from one to almost five years.

Currently (early February, 2008), Congress is debating the use of an income tax rebate and/or tax rate changes to stimulate the economy in a time of very slow growth and increasing unemployment. The proposed rebate is intended to put more cash in the hands of consumers so that they will demand ore goods and services. In an election year, this debate involves some necessary response to the current problems and some 'politics' as candidates compete for votes.

CONCLUSION

Review:

  • The Federal Open Market Committee decided to lower its target for the federal funds rate by 75 basis points on January 22 and another 50 basis points on January 30. This brought the federal funds rate to 3 percent.
  • The primary reason was slow growth and increased unemployment. The FOMC cited a weakening of the economic outlook and increasing downside risks to growth. The FOMC added that financial market conditions continue to deteriorate and credit has tightened. It added that information indicates a deepening of the housing contraction as well as some softening in labor markets.
  • The Federal Reserve can use its monetary tools, primarily open market operations to increase bank reserves, loans and spending.

Discussion: If you are a member of the FOMC, what will you look for in the coming months to determine what action to take at the March FOMC meeting?

[Answer:

  • If growth continues to slow, the federal funds rate can be further reduced.
  • If the growth rate increases, the current rate can be retained.
  • If growth picks up and inflation is a fear, the federal funds rate can be increased.
  • If conditions are uncertain, the FOMC can take no action.]

ASSESSMENT ACTIVITY

Have students click here to test knowledge of the FOMC

1. What was the target for the federal funds rate set by the FOMC at its January 30 meeting?

a. 3.0%

2. What entity makes loans at the federal funds rate?

a. Individual banks

3. How many individuals make-up the Federal Open Market Committee?

c. 12

4. What is the most commonly used monetary tool of the Federal Reserve?

c. Open market operations

5. What was the primary reason for the FOMC's most recent action?

a. Slow growth

6. Can the Federal Reserve directly alter consumer interest rates?

b. No

Discuss or assign these questions as a writing assignment:

  1. What are the Federal Reserve current observations and concerns? [The Federal Reserve FOMC believes that the economy is growing too slowly or not at all. Although there is some inflationary pressure, concern about slow growth and unemployment prompted two federal funds rate cuts in January.]
     
  2. What tool will the Federal Reserve use to accomplish its goals? [The Federal Reserve can buy U.S. Treasury bonds, which in turn will lower the federal funds rate. At this time, the Federal Reserve will seek to stimulate the economy by purchasing bonds. The Board of Governors has also reduced the discount rate. Another option is to reduce reserve requirements, although this is rare. Using open market operations is, by far, the more common policy tool.]
     
  3. If, in the coming months, the Federal Reserve were to become less concerned about the slow growth of the economy, what is it likely to do? [The Federal Reserve can either keep the federal funds rate the same or increase it if growth is picking up and there are more signs of increased inflation.]
     
  4. How do changes in monetary policy affect your family's spending and business spending in the economy? [If the Federal Reserve is buying bonds, banks will have more reserves due to increased deposits. With the increased reserves, banks will can increase the number and size of loans. The increase in loans and the resulting lower interest rates encourage business and consumer borrowing and spending. The increased spending in the economy may result in inflationary pressures.]

EXTENSION ACTIVITY

Student Role Play

Student will role play the January 30 FOMC meeting. Divide the students into two groups. One group should develop the arguments for another cut in the federal funds rate. The other group should develop the arguments against further cuts. Role play the meeting discussion with one student leading the discussion as Chairman Bernanke.

Arguments for further cuts:

  • unstable financial markets
  • very slow growth of GDP
  • higher unemployment
  •  the continuing housing crisis

Arguments against more cuts:

  • increased inflation late in 2007
  • the January 22 cut should be given time to work
  • evidence of continued slow growth is not clear