The Federal Reserve made a bold move today (echoing what Japan did several years ago to fight deflation), cutting its target for the overnight federal funds rate to a range of 0 to 0.25 percent, a record low.
The New York Times has more.
In its statement announcing the cut, the Fed’s Open Market Committee made it clear that it still had ammunition with which to stimulate the economy and referred the wide array of new lending programs that essentially allow it to pump money directly into financial institutions.
Tuesday, December 16, 2008
Fed Cuts Rate to Near Zero
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3 comments:
RE: "it clear that it still had ammunition"
No more. The problem with this approach when it begins in an already low interest rate environment there is little room to maneuver. The approach in Japan in similar circumstances failed. The reason is that consumer confidence is at the same level as the rates - zero. Even at zero they will not re-start spending just because of the rate.
The real impediment is not rates - it is fear of job loss.
How would you suspect this to affect CD rates?
Good question, Dan - I address this in my most recent post.
Colin - do you think fear of job losses is also what is causing the banks to decrease their lending to such a degree?
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