What Fed Rate Cut Means to You
The FOMC dramatically lowered the Fed Funds rate a half point to 1%, the lowest rate since the 2003 recession. The Federal Reserve's actions should lower LIBOR, which will lower interest payments on adjustable-rate mortgages. This will help those looking to buy a home or refinance. Anticipation of the Fed's actions caused the stock market to surge yesterday, driving the Dow up 889 points.
During the same meeting, the FOMC lowered the discount rate to 1.25%. The rate cut was just three weeks after the Federal Reserve joined other Central Banks around the world in a coordinated rate cut of 1/2 point. Since oil prices have fallen this fall, the Fed is not concerned about the threat of inflation. The Fed's actions further signal its willingness to support the financial markets with expansionary monetary policy. (Source: FOMC statement, October 29, 2008)
What It Means to You
The Fed has been using all its tools to pump needed liquidity into the financial sector. Chairman Bernanke knows the Fed must continue to take swift and aggressive action to keep the global economy from falling into a more serious recession. Over the long term, the rate cut will put continued downward pressure on the dollar, which may cause a resurgence next summer in oil prices, which are denominated in dollars.
Related Reading
- A Primer on Current Federal Reserve Interest Rates
- Fed Lowers Discount Rate...What Does It Mean?
- Understanding the Banking Mortgage Crisis
Comments
Cheap oil and a sort of stronger dollar were the only bright spots in this economy. I hope the lower fed rates help homeowners, but I worry that ben b. is greenspan II.
Actually, Bernanke learned a lot from Greenspan’s mistakes. Greenspan only used the Fed Funds rate, and was slow to use it at that.
Bernanke is very creative in using many more tools, and he is very aggressive in using them. He studied Japan’s decade-long recession, and the Great Depression, and learned that swift, decisive action is needed to combat recession.
Kimberly