This is the Cato Daily Podcast for Thursday, November 1st, 2007.

I'm Caleb Brown.

Is the Federal Reserve paying too much attention to certain sectors and setting interest rates?

Cato Institute Chairman William Niskannon says he'll be watching the Fed very closely

see how they explain this latest rate cut announced yesterday.

Well I worry that it would be interpreted as bailing out the housing industry and the housing related financial sector.

That will create expectations across the economy that pressure on the Fed can lead them to take an action to bail them out.

Along with that suggestion that this was essentially a bailout of that sector.

How credible is that argument given the huge write-downs

that banks have had to undertake on their own balance sheets?

Well, the write-downs are an appropriate response to having made very bad loans.

And the losses in the economy

give people a lesson as well as the gains.

And I think it's wholly appropriate for the major financial institutions that have made very bad investment decisions

to take a loss, and we shouldn't bail them out for it.

In the same day we had good economic numbers and a rate cut.

What should the GDP numbers and the inflation numbers tell us?

They should tell us that the overall economy is in remarkably good shape, a 3.9% rate of growth of real GDP, a 1.6% inflation rate.

Those are unusually good numbers.

They also indicate looking over the past history

that the Fed has basically put the third of the Greenspan bubbles behind it.

And it, so the overall economy looked quite good and has proved to be unusually resistant to problems in

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