Fed Appears Unlikely to Keep Cutting Rates

By Neil Irwin
Washington Post Staff Writer
Thursday, May 22, 2008; D01

Most leaders of the Federal Reserve viewed their decision to cut interest rates last month as a "close call," according to minutes of the meeting released yesterday, a document that made it clear that the Fed is probably done with rate cuts for the foreseeable future.

The stock market fell sharply due to an increased sense that no more Fed rate cuts are in the offing and because oil prices rose again, creating yet more stress for cash-strapped consumers and businesses. The Dow Jones industrial average was off about 227 points, or 1.8 percent. Crude oil futures touched a trading record yesterday, at $134.15 a barrel.

Fed leaders have pulled back their expectations for growth. The most pessimistic of the group expect the U.S. economy not to grow at all this year. But they also expect higher inflation than they did in January, a reason for the reluctance to keep cutting rates.

The minutes contain strong signals that the policymakers think their interest rate cuts so far -- seven cuts in the federal funds rate since September, totaling 3.25 percentage points -- will probably be enough to combat the economic weakness.

"Most members viewed the decision to reduce interest rates at this meeting as a close call," the document said, adding that the "risks to growth were now thought to be more closely balanced" by the risks of inflation. The document included sharp language about the "upside risk to the inflation outlook" from rising prices for oil and other commodity prices.

The message came through loud and clear to Fed watchers.

"They're now firmly on hold," said Ethan Harris, chief U.S. economist at Lehman Brothers, adding that he expected the Fed to neither lower nor raise its target for short-term interest rates soon.

Moreover, Harris said, since that policymaking meeting on April 30, economic data have been mediocre, not terrible, and financial markets have begun to stabilize. That solidifies the case for a pause on interest rates.

"It's going to require quite a bit of new information to get them to move one direction or another," Harris said.

The Fed is trying to maintain a tricky balance, signaling that markets remain fragile and that the central bank is ready to act if financial conditions go haywire or the economy heads south suddenly. But it wants to maintain credibility in its fight against inflation and doesn't want people to expect more rate cuts if the economy is merely soft.

"Several members noted that it was unlikely to be appropriate" to cute rates further, the minutes said, "unless economic and financial conditions indicated a significant weakening of the economic outlook."

The 17 top Fed policymakers -- 12 regional bank presidents and five governors -- dialed back their growth projections significantly from January to April. Their expectations for gross domestic product growth for this year now range from 0 percent to 1.5 percent; in January, the range had been 1 to 2.2 percent.

They expect the unemployment rate, now 5.1 percent, to end the year between 5.3 and 6 percent.

However, with prices of oil and food continuing their climb, the Fed officials also stepped up their expectations for inflation, saying they thought prices would rise 2.8 to 3.8 percent in 2008. That range was 2 to 2.8 percent in January.

The document also included more details of why two members of the Federal Open Market Committee -- Richard W. Fisher, president of the Dallas Fed, and Charles I. Plosser, his counterpart in Philadelphia -- dissented from the decision to cut rates. Both were more worried about inflation than the rest. Fisher "was concerned that an adverse feedback loop was developing" whereby lower rates were contributing to a falling value of the dollar, higher commodity prices and thus higher inflation for Americans.

Thursday, May 8, 2008

Local spotlight

Mover helps seniors to sell surplus items

Firm that specializes in relocating downsizing senior citizens will open consignment shop.

Christine Snyder / Special to The Detroit News

Sharon Rees says she felt prepared psychologically and logistically for her move to an assisted living facility. She had made choices about her belongings and her daughter--an experienced mover from her life as the wife of a naval officer--came to help. Still, such a move is no easy task for a 75 year old, says Rees. She had lived in her home for 48 years.

What really made the difference was hiring Assisted Moving, LLC, a full-service moving company for seniors based in Plymouth.

Bryan Neal started Assisted Moving four years as an answer to seniors and their families facing the daunting task of downsizing from spacious family homes to much smaller digs.

Assisted Moving organizes the entire downsizing process; making lists; facilitating decisions; shipping; tossing; selling and packing items.

"He had been in my home ahead of time so he knew where I was and what was happening and he also understood where my priorities were," says Rees, who says she appreciated his efficiency and calmness. "He never blinked. If he were (panicky) I might have reacted to that."

Toward the end of the move, Neal offered Rees a hug.

"He's very caring and very understanding about what somebody might be going through," says Rees.

When he opened four years ago, Neal says he did three or four moves a week. Today he averages between eight and 12.

"Growth has been very steady and at my own pace. I've spent hardly any resources on marketing and advertising," says Neal. "Word of mouth and senior community referrals have been amazing."

Assisted Moving's gross annual revenues have doubled from $100,000 in 2004 to $200,000. He says revenues have leveled out some this year. "It's an exciting time to put innovation to the test," says Neal.

In June, Neal is opening Assisted Moving Consignment Store in Plymouth. Part of the service Assisted Moving provides is selling items on consignment, a service that about half of his clients use.

Assisted Moving Consignment Store will take 50 percent of every item that sells; a typical consignment rate. "While we will sell to everyone, we only will take items from seniors who are moving or downsizing," says Neal.

"The biggest challenge is the unknown," says Neal of this new venture. "No one has ever attempted this before, so it's uncharted territory. However, I truly believe that there is a real need for our service."

According to Anita Salustro, associate state director, AARP Michigan, the time is ripe for services geared to seniors. There is, and will be, a huge growth in senior population in southeastern Michigan. By 2035, the population of those older than 65 will have doubled, making up 24 percent of the entire population.

"There is an absolute dearth (in services)," says Salustro. "It's too early in the game for people to have realized what a boon to the economy seniors are because they have deep pockets and fat wallets. These services are just emerging...filling these niches."

For Rees, she is glad that the services Assisted Moving provided are available to her. A unit recently opened in an assisted community that was Rees's initial choice so she's moving again.

Says Rees: "The first thing my daughter asked me when I told her was, "are you going to call Bryan?" She did.

Christine Snyder is a Metro Detroit freelance writer