Letter to the Editor: Interest Rate Cuts

In response to Martin Feldstein’s April 15 Wall Street Journal editorial page commentary “Enough With the Interest Rate Cuts”:

Prof. Feldstein asserts that “It’s time for the Federal Reserve to stop reducing the federal funds rate …” He is worried about commodity price inflation and concludes that “Lower interest rates could raise the already high prices of energy and food, which are already triggering riots in developing countries.”

These assertions and conclusions are sound. But coming from the leader of the weak-dollar evangelicals, they strike a dissonant cord. Indeed, when asked by Journal reporter Joanna Slater (“Weak Dollar Meets Both Sides of Debate”, April 11) whether people should worry about the dollar’s decline, Prof. Feldstein retorted “Basically, I would tell them not to worry.”

How can Prof. Feldstein wring his hands over commodity price inflation and at the same time not worry about the dollar’s decline? After all, the dollar’s depreciation has contributed mightily to the out-sized increase in the food and energy component of the consumer price index since the first quarter of 2002.

Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute.