A Pause

It had become almost routine. For nearly two years running, the U.S. Federal Reserve Board raised short-term interest rates a quarter percent at a time—until 08 August, when it decided to hold steady at 5.25%.

This "pause" was expected by many analysts. The often-stated reason for the 17 previous rate increases had been to keep inflation in check. With a slowing of the housing market and the economy in general, another increase could have been counter productive.

The Fed suggested that it would consider future rate hikes if inflation again became a concern. Analysts generally believe the rate will hold steady through the end of the year.

For the paper industry, the pause may offer a slight incentive to make capital investments. (Of course the better opportunity was in the spring of 2004—before the hikes began—when the short-term rate was 1%.)

Of bigger concern, and more significance to the economy as a whole, has been the increase in fuel costs and various disruptions in supplies. In this issue of PaperMoney, higher fuel costs are cited as a factor in the closure of at least two mills.

With a different "pause" in the Middle East, oil prices are relaxing a bit, after pushing to within a few dollars of USD 80 a barrel in July. Perhaps, this too, marks a plateau—for oil prices and for interest rates.

In both instances, a season of decline would be welcome.