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 August 18, 2007

Could Credit Turmoil Result in Rate Cuts by the Fed
Some economists are predicting that is the current market turmoil persists, the Federal Reserve's next step is likely to be to trim interest rates for the first time in four years.
Mark Zandi, chief economist for at Moody's Economy.com states that with the financial markets in disarray coupled with the potential for a credit crunch, the Federal Reserve will soon have little choice but to lower rates.

The Fed has injected $71 billion into the banking system with the intention of keeping the federal funds rate, the interest that banks charge one another, from rising above the Federal Reserve's current target of 5.25%.

A former Fed board member, Lyle Gramley, believes incoming data will illustrate a serious enough impact on the overall economy from the slump in housing and credit troubles that the Federal Reserve will be in a position to cut rates by a quarter-point at its October and December meetings.

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