Billionaire Forbes Urges US Federal Reserve To Cut Interest Rate, Remove Excess Liquidity

Source : AsiaOne News, Sep 9, 2007

SINGAPORE (AP) -- Billionaire publisher Steve Forbes urged the U.S. Federal Reserve on Sunday to cut a key interest rate by a full percentage point when it meets later this month, to solve an ongoing credit crisis.

The central bank should also focus on addressing the root of the problem - excess liquidity in the economy, Forbes said at lunch hosted by the Singapore Press Club.

Forbes said the Fed should cut the interest rate, now at 5.25 percent, by 100 basis points when it meets Sept. 18 and make it clear "that while they're going to solve the short-term crisis, they will, over the next year or so, start to mop up the excess liquidity.

"Removing excess liquidity - the Federal Reserve selling bonds from its portfolio and withdrawing funds from the market - that is tightening which the Fed has not done," he said.

Economists increasingly believe the Fed will cut the rate by at least one-quarter percentage point at the September meeting.

The Fed has not lowered the rate in four years, but pressure has been building on it to do so to help ease credit conditions. Lower rates would reduce borrowing costs for everyone from potential homeowners to companies looking to finance activities and purchases.

Forbes - the CEO of Forbes Inc. and editor-in-chief of Forbes magazine - said he expected the U.S. economy to slow down in the latter half of the year due to the credit crisis, but added that fundamentals remained strong.

"It will slow down in the second half of this year because of the repercussions of the crisis," he said. "Next year it should start to pick up again, especially in spring time."

Forbes also warned of a rising tide of protectionism in the United States - particularly in the Democratic Party - and elsewhere.

"Make no mistake, even though the global economy is doing very well, protectionist pressures are very strong in the U.S., you see it in Europe, you see it elsewhere," he said. "In the Democratic Party, protectionism is now rampant."

"It's going to take strong political leadership to keep these forces at bay," Forbes said. "Because if they're not kept in control, then this great global boom will cease to exist."