Larry Kudlow was on yesterday’s program (transcript here), and the always upbeat Kudlow was also adamant that the Federal Reserve had to act to help the economy via a dramatic lowering of the fed funds rate, beginning next week:
HH: So let’s sum up, Larry Kudlow. Do you expect the Fed to move next week on the basic number they’ve got to get down and do a price cut?
LK: Interesting question. Their next meeting is September 18th. I do not believe they should wait that long. I think they should take actions to follow up on today’s discount cut. They should do it next week. That’s what I sincerely believe.
HH: Half point next week?
LK: I think that would be absolutely appropriate. I mean, the gap between their rate at 5 % and the Treasury bill rate, at 3 %, is probably the widest it’s every been in my professional lifetime. And that’s a signal to the Fed, take action.
Holding back the Fed will be the always powerful drag on public institutions not to be seen as responding to pressure, and the cold fact that a cut next week would be an obvious admission on the Fed’s part of error concerning their last meeting.
But it would be very reassuring if Ben Bernancke came out with the news of a half-point cut and declared that even central bankers get things wrong and that inflation isn’t the issue, liquidity and confidence are the issues.