Chairman Spratt on Federal Reserve's Interest Rate Cut

From the Budget Committee:

Spratt Statement on the Federal Reserve's Interest Rate Cut

WASHINGTON — House Budget Committee Chairman John Spratt today issued the following statement on the decision by the Federal Reserve to cut interest rates.

“The Federal Reserve decision today to cut interest rates is an acknowledgment of the need to counteract the instability in financial markets caused by the subprime mortgage situation.

“Today's move by the Fed comes at a time when, unfortunately, the Bush Administration continues to advocate the same flawed budget policies that have left too many Americans struggling. Indeed, under this Administration, job creation has not kept pace with the growth of the workforce, and the real income of the typical family has decreased. The real income of a typical family has fallen by almost $1,000 since the year 2000, and in 2006 the poverty rate was 12.3 percent — that is over 36 million Americans living in poverty.

“Those same Bush Administration policies have also led to a dramatic reversal in the federal budget's fiscal health. In turning a $5.6 trillion surplus to more than a $2 trillion deficit, public saving has fallen dramatically, pulling down national saving with it. The national saving rate fell from 5.9 percent of GDP in 2000 to just 1.0 percent in 2005. Even with the decrease in the budget deficit in 2006, the national saving rate remained at a very low 1.9 percent. Such low national saving means a tighter supply of capital, which puts upward pressure on interest rates. Interest rates would be much higher were it not for the steady supply of foreign capital that has financed most of the Bush Administration's run-up in the public debt, and were it not for the accommodative stance on monetary policy the Fed has adopted over the course of the past several years. The Administration's fiscal policies have actually made the Fed's job more difficult–limiting the ability of the Fed to both keep interest rates low and fend off inflation.”

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