Reply #5: Consumer may get benefits from a Fed rate pause [View All]

[ozymandius]

WASHINGTON - While the Federal Reserve's aggressive drive to lower interest rates appears to be over, there could be benefits for consumers in other places — like some relief from soaring gasoline and food costs.

"With the Fed on hold and the dollar firming, oil and gasoline and food prices may all top out some time in the next few months," said Mark Zandi, chief economist at Moody's Economy.com.

On Wednesday, the Fed cut interest rates for a seventh straight time. But the reduction was a much smaller quarter-point move — not the half-point and three-fourths-point moves of earlier this year. It pushed the federal funds rate down to 2 percent.

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As the dollar falls, that tends to drive the cost of oil higher because oil is priced in dollars and producers start demanding higher prices to compensate for a weaker dollar. Those forces are also at work in terms of driving up other globally trade commodities such as metals and food including wheat and other grains.

With the Fed lowering the prospects for further rate cuts, the dollar can be expected to stabilize and perhaps rebound from the record lows it had hit in recent weeks against the euro and other currencies. That should help various commodities including oil and food to backtrack from their recent record highs, a process that may have already started.

http://news.yahoo.com/s/ap/20080501/ap_on_bi_ge/fed_interest_rates