Will The Fed Lower Interest Rates Next Week?

Economic Commentary - Fed Faces A Tough Decision

We are rapidly approaching some very important economic news. Next week we have the release of the first quarter economic numbers (GDP) and employment report for April. This happens while the Federal Reserve Board will be meeting and deciding whether to lower rates one more time. This time the Fed faces a very tough decision. Why? The price of oil hit $115 per barrel on April 16th. The incredible run-up in the price of oil causes a slow down in consumer spending that hurts the economy, but it also fuels inflation. Prices were up significantly on the wholesale level last month and these higher prices are likely to be felt beyond the gas pump.

If the Fed lowers rates, the dollar loses even more value and this causes oil prices to go up even more since most oil is imported. So the Fed lowering rates can not only increase the threat of inflation, it could wind up slowing the economy even more. Conventional wisdom says that lowering rates stimulates the economy. But in this case, the Fed may decide that lowering rates one more time could actually hurt. Yes, the Fed faces a tough decision---and no move or a smaller rate cut could be the result.