Tags: rogoff | fed | funds | zero

Rogoff: Zero Fed Funds Rate Likely

By    |   Thursday, 30 Oct 2008 08:20 AM

Is zero percent on the benchmark federal funds rate ahead?

There’s a good chance it will come to that, says Ken Rogoff, former chief economist at the International Monetary Fund.

“They're going to cut more. They're not done. I think we're going to end up down at zero,” Rogoff told public radio program Marketplace.

“But they don't really want to get there, because they don't know what they'll do next. After it's at zero.”

Things are that bad, says Rogoff. So bad that the rate cut isn’t really comparable to the similar moves made by former Fed Chairman Alan Greenspan a few years back.

“We're facing the financial mess of the century. We've been in it deep for more than a year. We're in a recession. There's really no credit flowing in the economy. Unemployment's rising. There's a global recession going on,” Rogoff said.

“So, it's really quite appropriate to cut rates here. In fact, we see credit still very tight despite the Fed having such low interest rates.”

At least one former Fed governor sees zero ahead as well.

“Zero is a possibility,” former Fed Governor Lyle Gramley, now an adviser at Stanford Group Co.

“The predominant concern will be inadequate growth,” Gramley told Bloomberg News.

“If the economy shows additional signs of a deepening recession, I think the Fed will decide that the floor is not 1 percent.”

On Wednesday the Fed made a widely expected cut to 1 percent from 1.5 percent. A little over a year ago, the benchmark rate sat at 5.25 percent.

The next meeting is in December. Gramley sees the Fed going to a 0.5 percent then.

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Is zero percent on the benchmark federal funds rate ahead?There’s a good chance it will come to that, says Ken Rogoff, former chief economist at the International Monetary Fund.“They're going to cut more. They're not done. I think we're going to end up down at zero,” Rogoff...
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2008-20-30
Thursday, 30 Oct 2008 08:20 AM
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