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Fed cuts target for key rate to record low

Discussion in 'Political Discussion' started by DisgruntledTunaFan, Dec 16, 2008.

  1. DisgruntledTunaFan

    DisgruntledTunaFan In the Starting Line-Up

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    Fed cuts target for key rate to record low - Yahoo! Finance

    Fed cuts target for key interest rate to record low, pledges to use all available tools.

    WASHINGTON (AP) -- The Federal Reserve has cut its target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

    The central bank on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. Many analysts had expected the Fed to make a smaller cut to 0.5 percent.

    The Fed's aggressive move was greeted enthusiastically by Wall Street. The Dow Jones industrial average rose about 350 points in late-afternoon trading.

    The Fed's action and statement made clear that economic conditions have worsened since its last meeting in October.

    Federal Reserve Chairman Ben Bernanke and his colleagues said they will use unconventional methods to try to contain a financial crisis that is the worst since the 1930s and a recession that is already the longest in a quarter-century. For example, the Fed last month said it planned to purchase up to $600 billion in direct debt and mortgage-backed securities issued by big financial players including Fannie Mae and Freddie Mac in an effort to boost the availability of mortgage loans.

    That move was one of a series the central bank has taken to increase its loans by hundreds of billions of dollars as a way to deal with the worst financial crisis to hit the country in more than 70 years.

    The Fed on Tuesday also made clear that it intends to keep the funds rate at extremely low levels.

    "The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the central bank's panel that sets interest rates said in a statement.

    Even before the announcement of a lower target, the funds rate has been trading well below the old target of 1 percent. For November, the funds rate had averaged 0.39 percent. Analysts said it was likely to fall further with the Fed setting the new target as low as zero.

    The Fed's decision was matched by a reduction in the prime lending rate, the benchmark rate for millions of business and consumer loans. Banking giant Wells Fargo and Co. said it was cutting its prime rate to 3.25 percent, down from 4 percent before the Fed action. Other banks are expected to quickly match Wells Fargo's move.

    The Fed has never pushed its target for the federal funds rate as low as zero to 0.25 percent. The lowest target rate before had been 1 percent, a level seen only once before in the past half-century.

    Given how low interest rates are, the central bank said it planned to use a variety of unconventional methods to flood the banking system with credit and drive interest rates lower.

    "The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said.

    The announcement on the deployment of unconventional methods had been expected given that Bernanke and other Fed officials have sought in recent comments to let financial markets know that the central bank will not be out of ammunition to battle the economic downturn even with the funds rate at such low levels.

    In its statement Tuesday, the Fed said that since its last meeting in late October, "labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment and industrial production have declined. Financial markets remain quite strained and credit conditions tight."

    The central bank acknowledged that it had room to battle the economic weakness because inflation pressures have "diminished appreciably" as the price of energy and other commodities has fallen sharply.

    The Fed action came only hours after the government announced that consumer prices dropped by a record amount of 1.7 percent in November, reflecting a record decline in the price of gasoline and other energy products.
     
    Last edited: Dec 16, 2008
  2. Real World

    Real World Moderator Staff Member

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    Let's hope the ECB drops their rates when they next meet, so the dollar doesn't get crushed. A crushed dollar will mean highr fuel prices again.

    BTW, what do they do next, pay people to borrow money?
     
  3. Run DMC

    Run DMC In the Starting Line-Up

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    #24 Jersey

    Here ya go:
    benniethepooh.JPG
     
  4. NEPatriot

    NEPatriot Banned

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    will we see 0% interest rate in the future?
     
  5. Wildo7

    Wildo7 Totally Full of It

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    do you even know what that means or are you just repeating what you heard on the news?
     
  6. NEPatriot

    NEPatriot Banned

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    We can't simply cut the interest rate every 3 or 6 months because we won't cut any more. I knew that it would happen when I saw the Fed cut the interest rate every 4 months last year.

    Yes, I expect it.
     
  7. Wildo7

    Wildo7 Totally Full of It

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    Ok, so you're just repeating what you heard on the news.
     
  8. NEPatriot

    NEPatriot Banned

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    something is wrong with your reading and comprehension skills.
     
  9. BSR

    BSR In the Starting Line-Up

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    No. Not for consumers.
     
  10. Real World

    Real World Moderator Staff Member

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    So what does this mean for a 30 year fixed? Could we see 4-4.5% for certain people?
     
  11. shmessy

    shmessy Maude Staff Member PatsFans.com Supporter

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    #75 Jersey


    We already see it now - - - for your threads.
     
  12. PatriotsReign

    PatriotsReign Hall of Fame Poster

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    Bada-BING!! Very witty!
     
  13. PatriotsReign

    PatriotsReign Hall of Fame Poster

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    This is hope that this can stop the decline in home values. Which in theory, it should do. But in times as uncertain as these combined with rapidly increasing unemployment rate, I think that's doubtful.

    As I've said before, home values will stop declining only when they are in-line with income levels in any given area. Then and only then.
     
  14. NEPatriot

    NEPatriot Banned

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    3% home loan for 40 years is here.
     

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