Sept. 21, 2007 — On Sept. 18, the Federal Reserve dropped its benchmark federal funds interest rate by an unusually large one-half percentage point, from 5.25 percent to 4.75 percent. Many analysts had expected a cut along those lines, but the more important question is what the cut means, especially since it was the first major move by Ben Bernanke, who took over as Fed chairman last year.
In this three-minute podcast, listen to Darden business professor Peter Rodriguez — who studied at Princeton under Bernanke — explain how he interprets the rate cut. The cut signals the end of the ‘Goldilocks’ economy — an economy running along, not too fast and not too slow — argues Rodriguez. Primarily, the cut buys Bernanke a few more months of time to gather information, says Rodriguez, but it does not signal any propensity by Bernanke to bail out subprime lenders.
Peter L. Rodriguez is an associate professor of business administration at the University of Virginia’s Darden School of Business. Trained an economist — who studied at Princeton under current Fed Chairman, Ben Bernanke — Rodriguez specializes in the study of international business, trade and economic development, with an emphasis on corruption. Rodriguez has been widely quoted regarding the effects of Katrina on the economy, gasoline prices, the housing market and other economy-related issues in the national media.
Rodriguez has received numerous awards for teaching excellence in classes ranging from international macroeconomics to business-government relations. Prior to his teaching career, he worked in the Global Energy Group at JP Morgan Chase.