Another Deep Rate Cut From The Fed

The Federal Reserve Open Market Committee today announced a rate cut of 75 basis points to 2-1/4 percent.

The Fed says:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

The AP says that the markets were initially displeased with the cut because they were hoping that the Fed would just ban interest altogether and start handing out free toasters with every loan:

While the cut was larger than the Fed’s normal quarter-point moves, investors were initially disappointed that the central bank did not cut rates by a full percentage point.

The Dow Jones industrial average fell 100 points within two minutes of the Fed’s mid-afternoon announcement but it then resumed climbing and was up nearly 200 points within the first half-hour after the announcement.

Fed Cuts Rates by 3/4 Percentage Point [Portfolio]
Fed Cuts by Three-Quarter Point, Suggests More Reductions Likely [Wall Street Journal]
Federal Open Market Committee Statement [FED]

Comments

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  1. hypnotik_jello says:

    Queue the haters who still think we’re still not in a recession… 3…2…1

  2. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    We’re not in a recession, nothing to see here, please move along.

  3. ohiomensch says:

    Didn’t they cut the interest over the weekend as well? Sheesh. And its not like any of us are going to see our interest rates lowered as a result.

  4. tme2nsb says:

    We aren’t in one right now.
    We’re well beyond a recession.

  5. sleze69 says:

    So how is this going to benefit me, Joe Consumer?

    I carry no credit card debt.

    I have a reasonable mortgage rate with PMI (still above 80% LTV).

    My school loans are consilidated at around 4.5%.

    My car loan is 1.9%.

    Unless I start buying irresponsibly, the only thing this is going to do is continue to kill my high-yield savings account. Am I missing something?

  6. beavis88 says:

    @ohiomensch: Not this interest rate.

  7. B says:

    @sleze69: It might keep your bank from going insolvent.

  8. tripnman says:

    @tme2nsb: All this talk about not being in a recession has me in a depression – a Great Depression.

  9. EBounding says:

    @sleze69: Are you invested in anything? If so, it’s going to affect those companies and their growth…maybe.

  10. Buran says:

    @Jaysyn: Hi Dubya.

  11. tomok97 says:

    @sleze69: If you carry no credit card debt, have a reasonable mortgage rate, consilidated school loans and a car loan of 1.9% then you sir, are not “Joe Consumer”.

    Feel free to take that as either a compliment or an insult. ;)

  12. Techguy1138 says:

    If this moves fails this will be the relative calm before the markets drop out.

    In the first depression there was a period of calm and modest gains fueled by a big investor. Once the big guys were able to pull out most of their cash the market had a steady and strong run to the bottom.

  13. ElizabethD says:

    I’m afraid.

  14. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    @Buran:

    Lol, what did you fail Sarcasm 101 in school?

  15. backbroken says:

    It’s not like inflation is a threat anymore. As long as energy remains dirt cheap and the dollar stays high, we can weather a slight downturn in the economy. And if you ever have a temporary money crunch, you can always count on your home equity to get you through a tough time as real estate will always be the safest place to put your money.

    Did I mention that I just woke up from a 7 year coma? Now let me check on what’s been happening in the rest of the worl….OH MY GOD!!!!!!!

  16. hi says:

    wonder who the big investor will be this time round.
    @Techguy1138:

  17. PeteyNice says:

    Come on negative interest! I want to be paid to take out a loan!

  18. Mojosan says:

    I thought a recession was 2 straight quarters of negative GDP. Is it now 2 mos?

  19. hi says:

    btw broke back that was funny :)
    @backbroken:

  20. PirateSmurf says:

    So is there a place where I can check (I would like to be paid in Euro’s)

  21. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    @hi:

    China?

  22. unklegwar says:

    @sleze69: Nope, you pretty much got it. You’re gonna take it up the backside. Me too. Thank god ING doesn’t adjust rates til the end of the day. I bought CDs at a higher rate. Problem is, I can’t buy long term, cuz I (was) planning on buying a house in the next year.

  23. elvisaintdead says:

    @sleze69: Sounds pretty good.

    But how’s the stability of your job?
    Think all of those lower-to-middle level, truly hardworking lifelong Bear Stearnies thought they were safe within their positions?

  24. hi says:

    @Jaysyn: that makes sense.

  25. macdude22 says:

    If they lowered my 6.8% student loans a couple points I could afford to bolster the economy.

  26. sleze69 says:

    @EBounding: Yeah. I have a bunch of stock in Sirius. Unless the merger goes through…well…atleast I have a bunch of stock losses I can deduct.

  27. Bladefist says:

    Rates go up, instituions rates go up. Rates go down, eh, we’ll lower’em someday….

  28. @sleze69: Should be able to consolidate those school loans down, I’d think. Mine are at 2.25%.

  29. redhelix says:

    Hmm. I have a few hundred shares of Nvidia, Novell and AMD. I’ve spent the better half of today trying to decide whether to sell them for about 1.5% more than I bought them for, or weather it out.

    If the economy ever swings back up, I’ll almost double my investment. If we hit a depression, I am screwed.

    It’s like deal or no deal, except nobody’s cheering.

  30. forgottenpassword says:

    Earning even LESS now in my high-yield savings. :(

    Just keeps getting worse & worse. Good thing I have no debt.

  31. zimzombie says:

    I like the file name on that chart: “lolfuck.jpg”. Quite appropriate.

  32. Greeper says:

    The rate cuts have trickled down to my equity line of credit, which a lot of people have. I also happen to have some I/O adj rate loans that I took out in 2004 and 2005 on investment properties so those payments (which had gone up considerably) have also fallen back down considerably. People chuckle when I mention these loans but I/o loand asn adjustable rate loans are still good choices in some situations. Overall using those loans did wind up saving me quite a bit of money over fixed loans (and when the rates are low, I apply any extra $ to the principle, event hough I dont have to). Just chiming in with a somewhat atypical experience than what we read a lot about…

  33. B says:

    @Eyebrows McGee: I thought you couldn’t consolidate more than once.

  34. missdona says:

    @redhelix: Weather Weather Weather. There’s nothing worse than a down market to fuel a decision to sell. Don’t do it!

  35. Jabes says:

    @unklegwar: You and me both. I’d love to boost the economy by buying my own place, but that’s getting harder as they keep screwing my savings.

  36. Bladefist says:

    @redhelix: stop watching your stocks until the market comes back.

  37. Beerad says:

    @B: I think it depends on who owns your loans. I consolidated once, and later another company told me that my current loan company “wouldn’t release” them. Good rate, though, so I’m not complaining.

    So will things get to the point where I can just get a HELOC at a lower rate than my mortgage and pay off my mortgage? Yes, I suppose I should just refinance at that point, but it doesn’t sound as fun.

  38. Narockstar says:

    Awesome! I can’t wait for the dollar to be totally and utterly worthless. Good job Fed!

  39. PeteyNice says:

    Buy gold folks.

  40. lonewolf333 says:

    Damn it, Damn it, Damn it. Is this like a once a week thing now.

  41. gamehendge2000 says:

    @Beerad:

    If you were to see a HELOC at a lower rate than your current mortgage, you’d also see new mortgages at lower rates as well.

    Typically, HELOCs are variable, and rest each month. Way less secure than an ARM, not to mention a fixed mortgage.

    HELOANs can be fixed – I have no idea of the pros/cons of paying of a 1st mortgage with a 2nd

  42. @sleze69:

    There are economic growth benefits when you encourage banks to lend. Responsibly lend. A rising tide lifts all boats*

    *unless your industry is to be creatively destroyed.

    @redhelix:

    Hold ‘em imo. *This does not constitute advice*

  43. sagis says:

    i think the rate cut are supposed to make people take money out of those money markets/cd’s and do something else with it, like , buy real estate?

  44. Orv says:

    Anyone want to take bets on what the next bubble will be? My guess is commodities. Gold and oil have both hit prices that don’t seem to be supported by market realities.

  45. Beerad says:

    @Orv: Tulips. Definitely tulips.

  46. cmdr.sass says:

    Since the economy is cyclical, I predict that just like in the 1950′s the next bubble will once again be Bowling.

  47. WraithSama says:

    Fortunately, my bank is still giving me 4.85% APY interest on my checking account. They’ve been awesome about keeping my interest rate sky-high even with the Fed slashing interest left and right.

    Of course, when I opened the account a year ago, the interest was at 5.85%. The bank kept that interest rate, even after the Fed had cut rates numerous times. When my bank finally cut a point off my rate, they sent me a signed letter of apology, saying they held off cutting my rate as long as they could. I’m still very happy with my current rate, I just hope they keep holding off cutting it again as they have before.

    I love Emprise Bank.

  48. stanfrombrooklyn says:

    I’m not really sure how these rate cuts help all the people that seem to be in a world of hurt. If your house is in foreclosure, this rate cut won’t help. If you are paying 29.95% on your credit card this won’t help. And if you lost your job this certainly won’t help. I just think these cuts don’t address the fundamental problems with the economy. Not that I have the answer.

  49. Canerican says:

    Recession watch? How about the fact that we have positive GDP growth, productivity is up, GNP is up, unemployment is below 5%.

    This is a period of stagflation. Its not complicated, and to those of you who will say, “a recession is based on the opinions of the individual, not rigid factors,” put down the crack pipe. Economists look at certain economic indicators, and they all have to line up for us to be in a recession. An economists opinion should only be used when estimating where something will go (in the case at hand, of course). It is absolutely dumb to think that an economist can determine that we are in a recession without even taking a look at certain important economic numbers.

  50. Canerican says:

    @stanfrombrooklyn: You guys don’t get it! This rate cut isn’t for credit card debt, its to send money into the economy. If people don’t get much for their saving, they will take their money out of their accounts, and spend it elsewhere.

    The Consumerist needs to get an actual economist on board.

  51. B says:

    @stanfrombrooklyn: The lower rates allow banks to borrow money from the Fed Reserve at a lower rate, which will hopefully keep them from going insolvent. The idea here is to prevent banks from running out of cash, which could cause a run on the bank. (like in It’s a Wonderful Life).

  52. csdiego says:

    @Bladefist: Tell that to ING Direct, where I have my so-called savings. I’m sure the rate cut has gone through already.

  53. sleze69 says:

    @Eyebrows McGee: I thought that once I consolidated, I wasn’t allowed to refinance.

  54. Canerican says:

    Hey could someone mention the DJIA being up over 400 points, putting else well ahead of where we were after Clinton’s recession.

  55. jinxprotocol says:

    My interest rates have PLUMMETED. I, too, have ING Direct, and my checking/savings has gone from 4.5 to (I guess) 2.25 APY in a matter of months. It’s infuriating.

  56. Orv says:

    @Canerican: It might be down 500 in a couple of days. It’s so volatile right now it all depends on when you look at it. The market boost from the Fed’s bail-out plan didn’t last long.

    I was just looking at the Nasdaq average from when the tech bubble burst and noticing what a nice “dead cat bounce” there was a few months after it fell off its peak. Of course, then it slid off into the abyss…

  57. ab3i says:

    so much for putting my money into high yield savings. its time to be irresponsible and go buy a car and a condo i cant afford!

  58. howie_in_az says:

    @csdiego: Yeah I’m just waiting for HSBC’s email saying “hay your money is making less now than 5 minutes ago!”

    @Canerican: You don’t get it: this is damaging my Ferrari savings fund. I could help out the economy in 10 years by purchasing one (and the gas), but now I won’t be able to do it for at least 15 years. THE SKY IS FALLING.

  59. Canerican says:

    @Orv: Yes, it might be. It might also be up 500. It depends on the numbers we get. The fact is that it seems like housing is stabilizing, and the stocks seem to be making a good comeback.

    I’m not saying that there isn’t problems, but saying that the fed cutting certain key rates is indicative of a recession is completely idiotic.

  60. Techguy1138 says:

    @hi:
    The Fed.

  61. Canerican says:

    @howie_in_az: Haha, it would be good either way. Its called the broken window theory, and you seem to think that taking money from the rich helps the poor.

  62. Orv says:

    @Canerican: I don’t think housing is stabilizing yet. Inventories are still high in many areas, which indicate there’s still excess supply. We aren’t even out from under the subprime cloud yet; Option ARM resets don’t peak until about 2010.

  63. selectman says:

    @Canerican: You lost all credibility with me when you mentioned “Clinton’s recession.” Such statements are an insult to our intelligence.

  64. ARP says:

    @Canerican: I think part of the problem is that much of our consumer spending over the past few years has been more debt funded (compared to previous highs/lows). Add to that stagnant wages and even big cuts in lending rates, small stimulus checks, etc. will not help as we simply have no more money to spend (even if we borrow it). Since much of the economy is consumer spending, we were on an artificial high.

  65. Canerican says:

    @Orv: Sorry, I meant pricing. There still are vacancies, but they will be filled when the prices stabilize again.

    @selectman: Well, I was just saying that to demostrate the absurdity of blaming a recession on a President, a point well taken I will assume. ;p

  66. Canerican says:

    @ARP: I wouldn’t say stagnant wages, real wages have been decreasing for some time. And yes, consumer spending has been largely financed, it slows money velocity a tad because of interest. However, real debt has only increased marginally from the 1970′s.

    The problem is that many don’t think in terms of the inflated (real) value of money, therefore do not realize that $1000 today equaled $5000 debt in the past.

    Now, if you have saving, take some advice, hold on to cash. Inflation is about 7.8% vs. average savings of 3.3% in a high yield account. Just thought I would pass that nugget on.

  67. AD8BC says:

    My stocks? Waaaayy up… at least temporarily…

    My savings interest, waaaayy down….. probably for a long long time.

  68. krom says:

    Pretty soon banks will be able to borrow money for free! Won’t that be great everyone?

  69. less_is_best says:

    There are 45 BILLION dollars in toxic ARM’s set to reset EVERY MONTH from now until 2011. How is the housing market “stabalizing” again? This is basically the beginning, not the end.

  70. Canerican says:

    @AD8BC: Same here.

    @krom: That won’t happen. Even if it did, the banks are likely the reason that you drive a car or have a house. Since the fed doesn’t lend money out to individuals, the bank is necessary for most of us to get any money.

  71. FLConsumer says:

    Maybe the stimulus cheques and lower interest rates will make most Amerikans spend their money. For me it does exactly the opposite. Given the volatile stock market, I’ve sold off much of my US stocks and traded for Euros and gold.

    What I earn goes in the bank and investments. I live off the interest/dividends. Oh, and that stimulus cheque? Nice gesture, but it’s peanuts compared to the damaged to my cash savings caused by the rate cuts. 2.x%? FFS, that won’t even cover inflation.

  72. rikkus256 says:

    This really sux for all us conservative people who have no debt and have most of our assets in savings.

  73. DeafChick says:

    I wish they do something about student loans.

  74. Techguy1138 says:

    @Canerican:

    People were very bullish in 1929 right before and even during the great crash.

    The American economy has very sizable and important problems that have been ignored because reckless lending and consumer spending have propped it up.

    We have had a steady decline in our manufacture and raw material base. Typically these are the industries where the countries make ground when currencies head into decline.

    We have had a steady increase in non-industrial fuel consumption and an inability to reduce our oil imports. We lack the capacity to balance our imports and exports. Not normally a big deal.

    The scandals and bank closing have shaken the international faith in US banking. The banking industry was truly what was being made here and exported.

    As faith is lost in US banking the value of the Dollar is falling. Also not normally a big deal. Except that we need foreign capital to finance our oil imports.

    Did I mention that we are at war and we are funding that through debt.

    Our currency is backed only by the faith of the US government. Foreign faith has been greatly shaken. There is no more domestic faith. Major institutions are no longer lending each other money. The fed is having to step in indicating a collapse on the domestic side.

    The US consumer as a group is highly leveraged and can not be depended on in an economic down turn.

    US banks have lost faith in each other and now depend on consumers paying rent to continue existing.

    The US FED is running out of power to make changes. At this point it can no longer try ‘gentle’ corrections through interest rates. It has to resort to forced buyouts.

    The US government has large debt oblilgations on its books with large obligations coming up. Baby boomers are retiring and we need to pay for the Iraq war.

    Any single one of these factors would lead to a slight downturn. All of then together show a very sick domestic economy and a lack of fiscal restraint over the last 7 years.

  75. @B: Yeah, they changed the rules since I got locked in and started paying. I’m not sure how it works anymore. :)

  76. MARTHA__JONES says:

    @ElizabethD: me too. Perhaps our grandparents hiding money in random places weren’t so batshit crazy after all.

    LOL.

  77. azntg says:

    The Feds can lower the rate to 0%. The economy still need a lot of time to improve, the banks will never ease up on the loans and the banks will never pass along the 0% prime once it does come.

    Give it up. It’s called skating on thin ice at the edge of the cliff!

  78. alulim says:

    @Canerican
    The US dollar is pegged. It’s set to a certain exchange rate in many circumstances. cut interest, “create” more dollars, they fall in value vs fixed comedies; ie oil.

    @Techguy1138
    You’re right for the most part but global economics is not based on raw material exports or manufacturing. Its more of cost/benefit analysis that ignores future consequences.

  79. krom says:

    The rampant crashing of the FFR sort of starts to remind me of how Chernobyl went critical. Just keep pulling rods, guys…

  80. Rectilinear Propagation says:

    If people don’t get much for their saving, they will take their money out of their accounts, and spend it elsewhere.

    @Canerican: Why? Even if I weren’t saving for something in particular why should I go out and spend my savings?

  81. Beerad says:

    @Rectilinear Propagation: Well, as far as investment theory goes, you might pull your money out of savings and opt for something with a more profitable return — you might use it to buy a house (which I hear are affordable these days) or invest in the market (which I also hear contains some bargain prices). Yes, there’s additional risk involved in those examples, but it’s an easier decision if you’re only earning 1.2% interest on a savings account vs. the 5.25% you were making a year ago…

  82. busrider says:

    Can’t say I’m not a little bit glad they dropped rates again. My wife and I are hoping to buy our first house in the next 3 months. And we actually have the money to afford it.

  83. smartmuffin says:

    @Rectilinear Propagation:

    It’s not that you “should” go out and spend all your savings, just that you have slightly less incentive to save now than you did before.

  84. wHATEver says:

    @Beerad: This is something I’m considering right now – using my savings (was getting 5.25%, now down to 3.00% and dropping fast) to pay off the majority of my student loans, which are locked in at 7.75% from consolidation many years ago and can’t go any lower.