STILL TOO HIGH

US pundits say it will be 1% (Aaron Patrick, June 22 2003, The Age)

Alan Greenspan is this week likely to become the first central banker since the '50s to set US interest rates at 1 per cent.

In a remarkable illustration of the weakness of the world's largest economy, the Federal Reserve chairman is expected to cut rates on Wednesday for the 13th time since the technology bubble burst three years ago.

But the previous cuts have left Dr Greenspan with a dilemma. Interest rates are getting so low that their ability to stimulate growth is coming into question. Economists expect rates to fall by 25 or 50 basis points from 1.25 per cent. The cut will reduce rates to zero, or close to it in real terms, because inflation - excluding food and energy - is at 1 per cent.

Hardly, since the good Doctor has himself testified that inflation measures overstate the rate by at least 1%. Posted by Orrin Judd at June 21, 2003 6:53 PM