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December 19, 2008
Federal Reserve Makes History, Rates 0 to .25
As most of you know by now, the Fed made history this week by reducing key interest rates (the rate that banks will charge on another) to an all-time low of 0 to .25 percent. There were hints that this would transpire, after the last cut that brought the target rate down to one percent in October. Previously, the one percent rate was the
lowest it had ever been and only seen once before in the last fifty years. The Fed also said that it planned to keep the rate at very low levels. In addition, the Federal Reserve assured they are doing all they can to try and fix the economy, but the move made clear that the economy has continued its downward trend.
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The move from the Fed helped Wall Street gain some momentum and ended they day up approximately 350 points. Many experts agree that this is the worst the
economy has been since the Great Depression, however, they believe that it will not have the same results. Ben Bernanke, the Federal Reserve Chairman, says that
they will be using "unconventional methods" to try and make sure that doesn't happen. One of the moves the Fed plans on doing is to buy back six hundred billion dollars
in mortgage-backed and direct debt securities from Fannie Mae and Freddie Mac. This will be done is hopes that it will make obtaining mortgage loans easier.
There are still rumors floating around that the once the new adiministration is in office, there will be a tax credit that will actually put money back in the
home buyers hands. The last credit offered to first-time home buyers more resembled a no interest loan than an actual tax credit. Rumors are abound that the
tax credit could be as much as twenty thousand dollars, but until it happens, it is only a rumor.
Prime lending rates were also reduced. These rates cover countless numbers of consumer and business loans. Wells Fargo followed suit by reducing their prime rate by .75% and
more banks are expected to follow as well.
The Fed confirmed that since last meeting in October, employment has deteriorated, consumer spending is down, construction as stalled, investments and production have dropped and this is having an effect on the availability of loans and credit. The upside is that energy use is down and has driven the price of oil down more than seventy percent from what it
was just months ago. Consumer spending has also driven down prices by a record of almost two percent.
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