Thursday March 20, 2008

Fed cuts interest rate by another 3/4 of a point

The Federal Reserve slashed a key interest rate by three-quarters of a point Tuesday [18 Mar 2008], capping its most aggressive two months of action in a quarter-century in a battle to halt a spreading credit crisis. The strong Fed action seemed to convince investors, at least for now, that the central bank will do whatever it can to keep the country out of a steep recession. The Dow Jones industrial average finished the day up 420.41 points at 12,392.66.

The latest Fed move brought the federal funds rate - the interest that banks charge each other - down to 2.25%, the lowest since late 2004. The reduction triggered announcements from commercial banks that they were cutting their prime lending rate to 5.25% from 6%. This rate is the benchmark for millions of business and consumer loans. Many analysts believe the Fed may cut rates only once more, perhaps by a more ordinary 1/4-point at the next meeting, and then sit back and see if economic stimulus checks that will begin arriving at 130 million households in May will do the trick along with the rate cuts to jump-start the economy.

- Like the contrarian community has been saying all along, the Fed will rather fight the recession than fight inflation. The Fed does not really fight inflation and never really has. By increasing the money supply, they are the ones who are responsible for creating the inflation in the first place.

See also :

1. Fed slashes rates another half a point to blunt economic slowdown
2. Fed cuts interest rate 3/4 of a point

(2008-03-20 12:40:22 SGT) [Biz] Permalink

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