April 30, 2008
Federal Reserve Cuts Interest Rate to 2%
Photograph of traders and specialists on the New York Stock Exchange trading floor by David Karp/AP
The Federal Reserve lowered the federal funds rate by 25 basis points to 2%, giving this explanation:
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters...Still, markets had a mixed reaction to the news, with stocks ultimately ending lower after initially rising after the announcement. And keep in mind, the interest rate was at 4.25% at the beginning of the year.The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Oil prices are also at a high, so the Fed is also monitoring inflation, and consumer spending has stagnated during the first quarter. Analysts don't expect the Fed to cut rates again--and they do expect a recession.
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I dunno, man. How the heck are we supposed to save any money to put back into this economy of ours if the interest rate is effectively 0?! I mean, it was bad enough at 4. But 2? 2 is pitiful. I just don't see how this does anything good...
Uncle Ben doesn't have any ideas.
#1
Because you're not an economist.
http://en.wikipedia.org/wiki/Keynesian_economics
If you cut the interest rate down far enough, businesses will have an incentive to invest to get a smaller return, as long as it nets more than stashing the cash (present value calculations).
those 2 guys will still have a job, right?
oh, thank God. scared me for a sec.
don't scare me like that.
Nivek, thanks. Exactly.
The mob remains the clueless mob.
You said it. Ain't that the truth.
Japan 1989: 0% interest, 0% growth, 0% common sense. Welcome to the next decade of total entropy.
They are watching the People's Court. And a lot of those floor jobs have disappeared. Hybrid Trading, she is a cruel mistress.
If the credit markets aren't giving new credit who cares if they slash interest rates? No one can get a loan anyway.
Are those guys astronauts?
#10 haha! yeah, what's with the flag?!?
Nivek,
Keynes is just one school of thought. That doesn't mean it's correct.
I don't think any of them are correct, quite frankly, given the bullshit nature in which they were conceived (i.e. taking Helmholtz's broken physics equations and fitting it to the economy).
That said, Keynesian economics is what has driven policy decisions for a good part of the 20th century, up until the present; the way it is presented is, of course, dependent on ideology.
This is doing nothing other than making the dollar drop like a stone and increasingly making the money in your pocket worth less by the day.
Well, i'm glad you econo people are such lovely people to talk with! I appreicate the explanation, but do us non-econ people a favor and chill on the sarcasm, please. I think a lot of people are worrying about how to save money. Perhaps there is some grander scheme going on, but i mean, it's been MANY rate cuts since last year, and individual families are feeling the brunt of it on both ends (i.e. higher costs and not being able to save as much). I don't think it's uncouth of people like us to complain about it!
#15: If you want to save money, buy gold/silver and securities denominated in foreign currencies. The dollar is an awful place to keep your wealth right now.
"If you cut the interest rate down far enough, businesses will have an incentive to invest to get a smaller return..."
Maybe that's an error or maybe I don't understand, but why would someone have an incentive to invest to get a smaller return?
[10] and [11]: I noticed that, too. I've always found that those who most readily display the flag are the least likely to understand and defend the principles behind it. It's just something for them to hide behind, a veneer of patriotism or actually nationalism. This is actually a violation of the Flag Code, which says, "No part of the flag should ever be used as a costume or athletic uniform. However, a flag patch may be affixed to the uniform of military personnel, firemen, policemen, and members of patriotic organizations." I guess these guys think of themselves as a "patriotic organization."