Dec
17
2008

Fed Cuts Short-Term Rate to Nearly Zero

 

 

 

 

 

 

 

Now that the world has admitted that we are in a recession the Fed thought they should step in and do their part.  Yesterday, in an attempt to fight the recession and the downword pressure on consumer prices, the Fed cut the key rate to the bone.  Huh?  This is the rate which affects how much banks charge when they lend their reserves to each other.

Well if that isn’t something to celebrate I don’t know what is!

In September 2007, the rate was at 5.25%. 

Ben Bernanke, the Fed chairman, said the Fed would take other steps to stimulate lending and economic activity, including large purchases of mortgage securities designed to unblock credit, that the central bank can use to keep stimulating the economy once the federal funds rate effectively reaches zero.

This couldn’t come at a better time. 

US housing starts tumbled 18.9 percent in November from a month earlier to a new record low, down 47 percent from last year’s level, in a sign that the troubled housing market has not yet hit bottom.

In addition US consumer prices plunged a record 1.7 percent in November, the second consecutive record-breaking decrease.

Sounds to me like it is time for some light to shine through.  Now I must go do some holiday shopping, which is my answer to fighting the recession and stimulating the economy.

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