The best tack is to move by a quarter point, with the promise that there will be more cuts to come if the economy remains weak. You can't maintain that promise with big bulky rate cuts.
More Quotes from Ethan Harris:
Clearly the new focus of Fed attention is the stock market, ... The Fed is not focused on many of the indicators equity analysts emphasize. Instead, the Fed's focus is on aggregate wealth creation in the market.Ethan Harris
By the fourth quarter, you will continue to have worries about corporate governance issues, a weak stock market and a buildup to war in Iraq leading to higher oil prices -- a lot of negative psychological forces in the economy that will make it very hard to sustain growth going forward,
Ethan Harris
The Fed is going to take a cautious approach (because) they're worried about how the consumer will handle higher interest rates, ... We've had recovery nurtured on super-low interest rates. They don't want to shock the patient by withdrawing the medicine too quickly.
Ethan Harris
What happened is that initially the market breathed a sigh of relief when the storm was downgraded to a Category 4 and missed New Orleans, ... they are starting to look at the damage more seriously. We are seeing further upward pressure on oil prices. People are starting to think about the many aspects of the destruction here.
Ethan Harris
It suggests moderate growth in the year ahead, but I don't think there's much risk of a 'double-dip' recession.
Ethan Harris
You're not talking about a full-blown business-cycle recovery here, which is something like 6 percent GDP growth for a year. To get that, you'll need the whole economy operating in full-growth mode, and clearly the consumer isn't.
Ethan Harris
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