Federal Reserve slashes interest rates

[Rogue 9]

The BBC

Fed slashes rates in shock move

The US Federal Reserve has cut interest rates to 3.5%, a shock three-quarters of a percentage point reduction.

Aimed at staving off a US recession, the move failed to calm investors, with shares continuing to fall sharply as Wall Street opened for Tuesday trading.

The Fed, the US central bank, said latest figures indicated a deepening of the country's housing market slump and increased unemployment levels.

One analyst said the Fed was "obviously panicked" by the threat of recession.

"Unfortunately they have no power to reverse what in my opinion is the worst post-war recession," said Michael Metz, chief investment strategist at Oppenheimer in New York.

'This is huge'

The Fed's interest move came as a complete surprise, as it was taken outside its timetabled rate-setting Open Market Committee meetings.

The last two such emergency cuts were on 17 September 2001, shortly after the attacks of 11 September, and on 3 January 2001, in the wake of the dotcom bust.

The last time the Fed cut rates as much as three-quarters of a percentage point was in August 1982, almost 26 years ago.

"This is huge," said the BBC's business editor Robert Peston.

"And it is a big risk. If this doesn't work, then people will say they have nothing left in their locker."

Analyst Jeremy Stretch of Rabobank, described the Fed's move as "a sign of panic".

"But it certainly indicates that the Federal Reserve wants to be seen as taking action over the concerns of an economic downturn," he said.

Yet despite the Fed's extensive cut in rates, US investment bank Merrill Lynch said at the start of this month that, in its opinion, the American economy was already in recession.

Another investment bank, Goldman Sachs, has also warned that recession is now likely.

Sub-prime woes

The sharp downturn in the US economy has centred on the slump in the American housing market over the past year.

Against a backdrop of higher US mortgage rates, home loan defaults and repossessions hit record levels last year, specifically in the sub-prime sector.

This industry specialises in higher risk loans to people on low incomes or those with poor credit histories.

As the sub-prime mortgage sector hit crisis point, it triggered record losses at some of America's largest banks.

It also caused the global credit squeeze, as much of this sub-prime debt was repackaged into wider debt offerings that were bought by banks and other investors around the world.

As a result, global banks are now much less willing to lend to each other, or to homes and businesses, until the full extent of the sub-prime exposure is known.

[SirNitram]

10 Print "Slash interest rate!"
20 Print "Tax cuts for the wealthy!"
30 Goto 10

Modern GOP economics...

[Rogue 9]

This goes a little beyond that, Nitram; cutting 3/4 of a percentage point in one go is something that hasn't happened in my lifetime, and probably not in yours either. The Fed's panicking.

[SirNitram]

This goes a little beyond that, Nitram; cutting 3/4 of a percentage point in one go is something that hasn't happened in my lifetime, and probably not in yours either. The Fed's panicking.

Rogue, you don't get it. The only solutions they can comprehend are those two. A high interest rate promotes saving(Bonds, bank accounts, etc, produce more), a low rate promotes spending(Via easy raising of capital via loans). The economic mess we're in is because loans have been too easy to get for anyone. Yet they continue the same course, because the concept of anything else is outside of their idealogical universe.

'The patient is losing blood rapidly!'
'Quick, attach some leeches!'

[Dark Silver]

The best idea would be to raise, but this is the era of Bushian Economics, slash and burn and make it easier to spend more - and worsen the economy.

Does it matter than a big part of the problem is the devaluation of the USD against other foreign currency?

Nah....according to the White House, the economy is going strong and this is just a hiccup.

[Rogue 9]

This goes a little beyond that, Nitram; cutting 3/4 of a percentage point in one go is something that hasn't happened in my lifetime, and probably not in yours either. The Fed's panicking.

Rogue, you don't get it. The only solutions they can comprehend are those two. A high interest rate promotes saving(Bonds, bank accounts, etc, produce more), a low rate promotes spending(Via easy raising of capital via loans). The economic mess we're in is because loans have been too easy to get for anyone. Yet they continue the same course, because the concept of anything else is outside of their idealogical universe.

'The patient is losing blood rapidly!'
'Quick, attach some leeches!'

Yes, Nitram, I do get it. I know cutting rates wasn't the best move, and I know that they were going to do it anyway. What got me was the size of the rate cut. It's a clear indicator that the Federal Reserve is starting to panic. I didn't say that their response was a good one, but panicked responses rarely are.

[SirNitram]

Yes, Nitram, I do get it. I know cutting rates wasn't the best move, and I know that they were going to do it anyway. What got me was the size of the rate cut. It's a clear indicator that the Federal Reserve is starting to panic. I didn't say that their response was a good one, but panicked responses rarely are.

Then you still miss the point. If your only option with the Fed is cutting interest rates, paniced times will merely introduce ever-more-drastic cuts. There's nothing surprising here: Idealogues are being idealogues. It's why I'm not surprised by word that they'll meet again next week.. Nor with the rumours it'll drop another half-point.

[Rogue 9]

*Sigh* I know they're ideologues; you may notice that I said I knew they were probably going to cut the rate and that I also said that I know it's a bad idea.

I wish they'd raise the rates. I really do. I pack away money in my savings account just as fast as I can earn it and hardly spend for anything; this is going to murder my interest rate, which fucking sucks for me because the last thing I'm going to do is get a loan just because the interest's low. It's not a huge difference, because I don't have enough money squirreled away to get a large return on the interest, but it's there.

But ideologues or not, they have to realize that there's a point at which they just can't lower the rates anymore, yes? After all, if they thought that lower interest rates are always good, they'd have just set it at 0% or maybe 0.5% right off and been done with it.

[Mayabird]

[conspiracy theory goggles on]They're trying to make the inevitable crash even more painful than it would be if they let the cycle go through. All they have to do is try to fend it off a little while longer, and then if the Democrats take power, blame it all on them. [conspiracy theory goggles off]

Yeah, delaying the inevitable is only going to make things worse later. It's like these people are more afraid of a recession than Armageddon.

[SirNitram]

[conspiracy theory goggles on]They're trying to make the inevitable crash even more painful than it would be if they let the cycle go through. All they have to do is try to fend it off a little while longer, and then if the Democrats take power, blame it all on them. [conspiracy theory goggles off]

Yeah, delaying the inevitable is only going to make things worse later. It's like these people are more afraid of a recession than Armageddon.

They're afraid of a recession under Bush and that was sown during the GOP majority. Because if people make that connection, it is Armageddon to them. They boast of 'fiscal responsibility', remember.

[frigidmagi]

*mutters*

fiscal responsibility my left ass cheek.

Spend and Spend is not fiscal responsibility.

[Charon]

As I've said before. It's good to know that small national government and fiscal responsibility are only the ideals of the Republican Party when they aren't in power.