Bring Back The Low Rates

Fed Statement - The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.

Today, the Fed’s interest-rate policy committee lowered the rates it controls for the first time in four years. These central bankers, eyes clearly on a wobbly housing market, lowered the benchmark Fed Funds rate by 0.5% to 4.75%. The Fed last lowered their rates in June 2003, a quarter-point cut to 1% where it stayed for a year. Today’s move is also the biggest cut since November ‘02. That ‘03-’04 cheap money is blamed, by some analysts, for fueling a home-buying mania whose recent reversal helped cause a currently shaky economy. A string of 17 quarter-point hikes in ‘04-’06 brought Fed Funds, which usually moves other short-term rates with it, to 5.25% before today. Several experts think even more rate help is needed. The Fed also today lowered the “discount rate” it charges banks by a half-point to 5.25%. While lowering its rates, the Fed’s comments indicated …

• “Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

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