Analysts predict Fed will pare rates by another 0.5%

WASHINGTON – Declining home values, the recent instability in the stock market and a weak job market are expected to spur Federal Reserve policymakers to pare the benchmark federal funds rate by half a percentage point to 3.0 percent, traders and analysts told Bloomberg News.
“The Fed is going to have to keep slashing rates, probably below inflation,” Robert Shiller, a Yale University economist, told Bloomberg News. Futures prices quoted on the Chicago Board of Trade show investors expect the rate to be cut to at least 2.25 percent this spring or summer.
But by paring interest rates to below inflation – creating a negative real interest rate – the central bank would be entering “a substantial danger zone,” according to Marvin Goodfriend, a former policy adviser at the Richmond Fed. “The Fed’s mistakes have been erring too much on the side of ease, creating circumstances where you had either excessive inflation or a situation where there is an excessive boom that goes on too long,” he said.
The policymaking Federal Open Market Committee, which convened today for its regular two-day meeting, is slated to announce its decision tomorrow afternoon. Last Tuesday, the panel slashed the funds rate by 0.75 percentage points – the biggest cut since at least 1990 – in an effort to stem a global stock slump. (READ MORE.)
Additional information about the Federal Reserve System, including recent policy statements by the Federal Open Market Committee, can be found at www.federalreserve.gov.