The Fed Cuts Interest Rates Again, Target: 0%-.25%
12/16/08 Categories: Economy
The
Federal Reserve came out with new rate cuts on Tuesday, December
16. They have dropped the Fed Funds Rate Target to a
range of 0%-.25%. This may be
the first time they have ever stated a range rather than a stated
rate.
The discount rate was cut by 75 basis-points or .75% to .5% from 1.25%. The Dow Jones Industrial Average rallied up to 3% right after the announcement, and then it dropped several minutes later to up over 2% or 185 points.
This is the lowest level that has ever come out from the Federal Reserve since it was established. They are going to have to seek other means of easing this beaten up and suffering economy. After lowering rates meeting after meeting, the Fed is running out of tools and is going to have to get creative if they are going to help. The Fed's balance sheet has more than doubled from $900 billion to almost $2.2 trillion.
Cutting interest rates is not at all close to a "cure-all". Japan's interest rates stayed at 0% for years, and they have undergone one of the longest recessions any country has seen. They have been in a recession since the 1980s. One thing that we have done right that Japan didn't is mark-to-market accounting. They refused to write-down their inflated real estate portfolios with the hope that the market would turn around soon, but then again that has absolutely nothing to do with the Fed.
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At some point, we have to realize the Fed is not going to save us. We have to let these things work themselves out. With automakers and banks still on the brink of failure, the only thing we can do is wait to see what happens, and then move on.
Living in Florida, it reminds me of something we do when disaster hits. During a hurricane, all you can do is hunker down and make it through. You have to wait for the storm to pass to assess the damage. Only then can you start to get everything back to normal. Trying to repair things in the middle of a storm is almost always a failed effort.
The discount rate was cut by 75 basis-points or .75% to .5% from 1.25%. The Dow Jones Industrial Average rallied up to 3% right after the announcement, and then it dropped several minutes later to up over 2% or 185 points.
This is the lowest level that has ever come out from the Federal Reserve since it was established. They are going to have to seek other means of easing this beaten up and suffering economy. After lowering rates meeting after meeting, the Fed is running out of tools and is going to have to get creative if they are going to help. The Fed's balance sheet has more than doubled from $900 billion to almost $2.2 trillion.
Cutting interest rates is not at all close to a "cure-all". Japan's interest rates stayed at 0% for years, and they have undergone one of the longest recessions any country has seen. They have been in a recession since the 1980s. One thing that we have done right that Japan didn't is mark-to-market accounting. They refused to write-down their inflated real estate portfolios with the hope that the market would turn around soon, but then again that has absolutely nothing to do with the Fed.
Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com
At some point, we have to realize the Fed is not going to save us. We have to let these things work themselves out. With automakers and banks still on the brink of failure, the only thing we can do is wait to see what happens, and then move on.
Living in Florida, it reminds me of something we do when disaster hits. During a hurricane, all you can do is hunker down and make it through. You have to wait for the storm to pass to assess the damage. Only then can you start to get everything back to normal. Trying to repair things in the middle of a storm is almost always a failed effort.
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