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Note to readers: I’m traveling today and tomorrow so the updates will be slow. Back in the saddle Saturday.
The Federal Reserve cut the key lending rate to 2% primarily due to concern over continuing woes in the housing and credit markets and the economy’s flirtation with recession, but hinted that they may be done for the time being.
From the Market Watch article on the rate cut:
The Federal Reserve chose to cut short term interest rates on Wednesday for the fourth time this year, saying it remains troubled by the economic outlook, but signaling that it now may leave rates steady for a while.
The Fed lowered its benchmark federal funds rate by a quarter percentage point, to 2%.
Rates stood at 4.25% at the start of the year. Two Fed officials, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, dissented from today’s decision in favor of no rate cut.In its statement, the Fed seemed comfortable where rates are now.
“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 statement said.
The FOMC did tweak the statement to add slightly more emphasis that it was worried about inflationary pressures and less worried about further weakening, a signal that the committee may leave rates steady at the next meeting.
With the economy showing little growth many analysts and pundits fear that we’re teetering on the verge of recession. This bias prompted the Fed to cut now, to try to help keep the economy from shrinking over the coming quarters.
The economy is treading water, managing to avoid slipping into recession. The Commerce Department reported earlier Wednesday that growth remained at an anemic 0.6% rate for the second straight quarter.
But many analysts say the economy can’t keep treading water forever and that a recession is likely. Treasury Secretary Henry Paulson is hoping that the fiscal stimulus package will act as a life-preserver and rescue the economy.
The money from the government may strengthen consumer spending but will also make it difficult to judge the underlying fundamentals, economists say.
The labor market has been weakening along with consumer spending as the housing market continues to sink to depression-era lows. In addition, gasoline prices have sky-rocketed.
