Fed Interest Rate Increase A Minor Move: U.S. Economist

A U.S. economist pointed out on Feb.19 that the Federal Reserve's increase in the discount rate on Feb.18, charging banks for emergency loan, was a minor move and should not be overstated

According to Xinhua News Agency, a U.S. economist pointed out on Feb.19 that the Federal Reserve's increase in the discount rate on Feb.18, charging banks for emergency loan, was a minor move and should not be overstated.

David Mirza, an associate professor with the Department of Economics at Loyola University in Chicago told reporter that the increase of 0.25 percent by the Federal Reserve was really minor and it was simply an indication that the Federal Reserve would increase interest rate if there was inflation.

He stressed that raising the discount rate was only one of the steps the Federal Reserve could take to normalize the liquidity provisions according to Federal Reserve's announcement. It would not produce negative impact on public, nor signal any change in monetary policy. The Federal Fund's rate would stand at the lowest level between 0 to 0.25 percent for a while.

The Federal Reserve might make a few changes over short-term interest rates but was not going to increase long-term interest rates this year. "The long-term interest rate this year probably will not go up substantially, because if it does, it is going to be detrimental to the real estate market in the United States," he said, "The downcast stock market might affect about 25 percent to 30 percent of us, but the depressed real estate price will affect almost all."

Regarding President Obama's stimulus plan, he considered injecting money into the banking system as a relatively quicker fix, but worried that the banks were fearful of lending money, instead, they took the stimulus money to simply solve financial problems. He also suggested that the government should give tax breaks that can increase productivity in the economy and also increase spending as well.

He said the U.S. government might reduce the amount and the rate they were spending money, but if they eliminate it right now, it was likely pulling the rug under the economy. He also warned that the government should be careful to avoid inflation.

Full article in Chinese: http://www.bocvip.com/2010-02-22/110382406.html