GDP Slows; Feds Cut Key Interest Rate Again

The Bureau of Economic Analysis has released its advance numbers for GDP during the last quarter of 2007. They show that the economy slowed down considerably during the 4th Quarter to an annualized rate of 0.6%. Advance numbers are by nature preliminary, and are usually adjusted upwards after more economic data is received. But it still represents a significant slowdown, making the need for an economic stimulus package more acute.

Coincidentally, the Fed lowered interest rates another half a point today, to 3.0%. From the Fed's statement on the cut:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3%.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Todays policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

To translate, the risk of recession is outweighing the risk of inflation, and the Fed is open to more rate cuts if the economy doesn't respond. Bernanke and Company are doing their part to prevent us from falling into a recession, using an aggressive pre-emptive and very public risk management strategy, as opposed to the Fed under Greenspan which tended not to anticipate but to react, keeping any thoughts outside of the minutes of the Fed meetings secret. I like the new approach, and so does the market.

In addition to recent moves by the Fed, the President has done his part to forestall a recession by offering up an economic stimulus plan. Now it's up to the Democratic Congress not to screw things up. We're waiting...