Credit Crunch May Prevent Fed from Raising Rates

Before the onslaught of the credit crunch, it was widely believed that the Fed would raise rates to cool inflation fears. I remember on BestCashCow reading quite a few articles discussing fears of inflation and real inflation versus core inflation, etc.

The credit crunch though has done the work for the Fed. Since the crunch happened, rates on certain bonds and mortgage products have already risen, dampening some of the economies growth and easing those inflation fears. Europe recently found itself in the same position, and instead of raising rates, as was expected several months ago, left the alone.

My bet is that the Fed decides to do nothing and leaves the Federal Funds Rate at 5.25%.

The jobs report tomorrow will be the first indication of what is happening. If the report comes in stronger than expected, as I think it will, it’s a pretty good indication that the Fed will remain on the sidelines.