Fed Cuts Key Interest Rate by 0.75%

[babylonsister]

Fed cuts rates by 3/4 of a point
Central bank lowers key rate to lower borrowing costs for consumers, businesses, as it risks lower dollar in effort to ward off recession.



NEW YORK (CNNMoney.com) -- The Federal Reserve slashed a key interest rate by three-quarters of a percentage point Tuesday, the latest in a series of moves by the central bank to try and restore confidence in the economy and battered financial markets.

The Fed cut its federal funds rate, an overnight bank lending rate, to 2.25%. It is the sixth cut in the past six months and comes at a time when the Fed is trying to keep the economy from slipping into recession - although many think it's already entered one.

Interest rate cuts are usually viewed as beneficial for the economy since they typically lead to more lending. The federal funds rate affects how much consumers pay on credit cards and home equity lines of credit, as well as the rate paid by many businesses on loans tied to banks' prime rate. But some experts think lower rates won't solve the credit crunch paralyzing Wall Street.
Read the Fed's statement

The Fed cited a weakening labor market and a slowdown in spending by consumers, as well as a continued crisis in financial markets and tight availability of credit to justify the cut. U.S. employers have cut 85,000 jobs so far this year, according to the Labor Department, the most in four years.

more...

http://money.cnn.com/2008/03/18/news/economy/fed_rates/index.htm?postversion=2008031814

[ThomWV]

1. Bingo! I win.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3018832

I refer you to response number 14.

[Virginia Dare]

2. Whee! Another band-aid on the amputation...n/t

[Mountainman]

3. Why the Fed's rate cuts won't help you

"But the Fed's effort will have little effect on the ability of the average American to get a cheap loan for a new home, car or college education even as it has a large effect on U.S. banks' ability to fix their balance sheets by racking up fat profits.

If that sounds unfair, welcome to the latest episode of a brutal new American business ethic, in which the government bails out bad bets by risk-taking banking executives in New York with money that it borrows from middle-class families and foreign investors. The effort is gilded with fancy financial language and cloaked in the guise of a rescue that helps all citizens, but the reality is that Washington is essentially robbing the poor to help the rich."


"Rather than providing funds to prospective home buyers and business people with legitimate needs for moving into larger homes or expanding factory lines, records show the banks are hoarding the low-cost money they're borrowing from the Fed and investing it in Treasury bonds paying higher interest yields. They're then pocketing the windfall profits to repair their own ravaged balance sheets."


http://articles.moneycentral.msn.com/Investing/SuperModels/WhyTheFedCutsWontHelpYou.aspx

[Jim__]

4. And the DOW jumps 420 points.

I'm sure it's all fixed now. :sarcasm:

[Ichingcarpenter]

5. They only have 2.25% left to play with until November

The Fed has slashed its target rate 2.25 percentage points since September,
and has engaged in all manner of novel auction schemes to bolster liquidity,
particularly among those holding the bag on soured mortgages.

Yet despite momentary blips upward, the stock market and the overall economy
continue to slide. Even as the Fed's actions pushed many short-term interest rates
below the inflation rate, fixed mortgage rates have begun rising.
As inflation expectations gather steam, the Fed will find itself painted
into an ever-shrinking corner.


Regardless of past mistakes, the Fed must now make the best of a bad situation.
It must stop chasing the financial markets, and even the broader economy.
Creating more dollar bills will not add to the nation's wealth,
or make workers more productive.

The alleged trade-off between inflation and unemployment--the Phillips Curve
--is no guide for action. Yes, an unexpected injection of new money can
temporarily boost real output.

But once people come to expect the higher rates of price inflation, t
he Phillips Curve simply shifts; it takes greater and greater injections
to achieve the same stimulus. That is how a country becomes trapped in a stagflation spiral.

The painful and costly recessions of the early 1980s were the result of the inflationary policies of the Fed during the 1970s. In contrast, Fed policies during the 1980s and 1990s focused on curbing inflation and maintaining price stability; this shift in focus produced both low inflation and strong, steady real growth. It would be a terrible mistake to throw out that costly victory in an effort to avoid a recession today--one that's already baked in the cake.

The Fed should commit to long-term price stability, and it needs to back up that commitment with action. Recessions will always be with us, but they will be shallow and short when the Fed keeps inflation low and evenly paced. If the Fed continues cutting rates, we will simply get the worst of both worlds: prolonged recession and excessive inflation.

http://www.forbes.com/home/opinions/2008/03/16/fed-inflation-rates-oped-cx_rmlh_0317fedinflation.html