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Government May Halt Rate Cuts as Inflation Rises

[May 17, 2008.]


The Federal Government has recently made its latest cuts to the prime interest rate, another move added to the largest and fastest amount of reductions that have occurred in over twenty years.

However, these cuts might be coming to an end soon considering that it has come to the attention of the policy makers responsible for these cuts that inflation might be on the rise again. They're also considering the fact that the government has recently begun to produce the federal tax rebate checks that are due to be released and mailed sometime this summer, a move that hopefully might boost the economy and thus make it unnecessary to further reduce the interest rates for the cause of revitalizing the economy.

Making the case known for stopping rate cuts by the Federal Government is Martin Feldstein, a man of notable reputation who for close to 30 years had lead the group that officially proclaims the beginning of recessions. Following his sentiments are Kevin Warsh, Janet Yellen, and several other bank presidents who have all voiced their concerns regarding the rising costs of goods in the economy.

Investors and analysts are increasingly becoming active in the debate that the Fed will stop manipulating the interest rate for the remaining quarters of 2008. Fueling the talk is the fact that the central government bank has reduced the interest rates no less than three times already within the short period of time that this year has been present, bringing the total rates down to a remarkable 2.25%.

Dean Maki, chief economist of US affairs at Barclays Capital Inc. of New York, has said that he believes the country is close to the end of the rate cuts imposed on banks and businesses. He also goes on to say that the economy is starting to improve and that likewise the phantom of inflation will get the economy in its bony grasps if the government continues to intensify its efforts towards cutting interest rates


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