Tuesday, January 22, 2008

Prevent Defense Mode For Federal Reserve

As the global markets went into meltdown mode yesterday, the Federal Reserve acted swiftly today by cutting the interest rates by 3/4 of a point on the federal funds rate. That's a huge cut and is designed to help regain investor confidence.
The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point on Tuesday, the biggest one-day move by the central bank in recent memory.

The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.

The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.
We'll see if the markets respond today.

I do know that this is going to have one ancilliary effect on me. It will make refinancing my house that much more attractive. Refinancing will either free up more money (if I stick at the same term) or it will reduce the length of the mortgage. Either way, I'll be paying less interest.

However, it would be nice to actually put a date to the claim that this was the biggest one-day move by the Fed instead of simply stating "largest move in recent memory". It might give some context as to how serious the Fed views the problem and would be more informative.

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