(January 12 – 16:10 ET) – Even after today’s stronger than expected inflation numbers in the U.S., TD Bank economists are calling for a 50 basis point cut at the next meeting of the U.S. Federal Reserve Board.

The U.S. Producer Price Index rose 0.3% on the core rate, in November. Most economists were expecting a 0.1% rise. So economists are worried about building inflation that will keep the Fed from cutting rates aggressively. But TD remains convinced that the Fed should be aggressive. They reason that weak retail sales, high energy prices, and falling equity prices will be enough to convince the Fed.

TD economists are calling for a 50 basis points cut at the meeting on January 31st, and a 25 bps cut on March 20th. “The caution that the Fed displayed towards lowering interest rates in the final months of 2000 was due in part to the persistent upward march of crude oil and natural gas prices,” says Sheryl King, TD economist.

Signs of slowing U.S. economic growth have knocked crude oil prices from their highs, bringing some much-needed relief from higher heating oil and gasoline prices, says King.

“And, even though cold winter weather and concerns about adequate supplies have kept natural gas prices in the stratosphere, this is more likely to crimp consumer and business spending further in the coming months than to put upward pressure on inflation, given the precarious state of the U.S. economy at this time.”
-IE Staff