The Federal Reserve entered a new era on Tuesday, setting its benchmark interest rate so low that it will have to reach for new and untested tools in fighting both the recession and downward pressure on consumer prices.
Going further than analysts anticipated, the central bank said it had cut its target for the overnight federal funds rate to a range of zero to 0.25 percent, a record low, bringing the United States to the zero-rate policies that Japan used for six years in its own fight against deflation.
The move to a zero rate, which affects how much banks charge when they lend their reserves to each other, is to some degree symbolic. Though the Fed’s target had previously been 1 percent, demand for interbank lending has been so low that the actual Fed funds rate has hovering just above zero for the past month.
Far more important than the rate itself, the Fed bluntly declared that it was ready to move to a new phase of monetary policy in which it prints vast amounts of money for a wide array of lending programs aimed at financial institutions, businesses and consumers.
In essence, the Fed is embarking on a radically different route to stimulate the faltering economy, and it puts the Fed chairman, Ben S. Bernanke, in partnership with the incoming Obama administration as it moves on a parallel track.
“Badly behind?” The Fed is perpetually and unavoidably one phase behind in the business cycle which its own policies engender.
Do we as christians encourage fiscal stimulation over work ethic?
I am afraid that just such an error has brought us to this point.
Don
I think Don is asking the right question here. It’s one on which we don’t really hear enough discussion either here or on the other side of the Atlantic. Where is the pope, the ABC et al. on the pressing issues of the day?
Until interest rates are cut for everyone (including credit cards, auto loans, etc.) the economy will not recover. This is simply more of the trickle-down economics which has contributed so mightily to the mess. So far, the bankers have used the ‘savings’ of lower rates plus the government hand-out to pay dividends, pay bonuses, and buy out competitors. They were SUPPOSED to use it to defrost the credit markets! Ha! DonGander, millions of Americans have a GREAT work ethic: but those at the top of the income totem pole (AIG, Wall Street, etc.) learned how to rip off the working little guy, and the Cheney/Bush Administration sat on its hands and let it happen. Now it’s finally coming to light that the SEC hasn’t been doing its job for the past 8 years. S’prise, s’prise! The Bushies appointed foxes to guard the henhouse!