Rate cut expected as Fed mulls emergency tools

[Adsos Letter]

Source: Reuters

WASHINGTON (Reuters) - The U.S. Federal Reserve is expected to lower interest rates closer to zero on Tuesday and point toward emergency tools it could deploy to end a year-long recession, with room to cut borrowing costs running out.

Economists expect the central bank to lower its target for benchmark overnight rates by at least a half-percentage point, to 0.5 percent, and clearly state it will aggressively use unconventional measures to restore growth.

With yields on U.S. Treasury debt already very low, economists say the Fed may get better results by aiming at mortgage-backed securities. Increasing demand for these bonds should help to reduce mortgage rates, spurring demand for homes and hopefully halting the slide in housing prices.

In fact, some economists predict the United States could suffer a deflationary period of its own in 2009, as tumbling oil and commodity prices, alongside increasing slack in the economy, deliver a sustained fall in general prices.



Read more: http://www.reuters.com/article/topNews/idUSN1550484520081216?feedType=RSS&feedName=topNews&rpc=22&sp=true

[bluestateguy]

1. How about negative interest rates?

Could they do that?