Bernanke May Cut Benchmark Rate by Most Since Volcker (Update1)
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, bernanke, feds, rate cut March 18th, 2008March 18 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke may be readying the deepest interest-rate cut in a generation as the central bank struggles to prevent a meltdown in financial markets and a recession.
Traders predict the Federal Open Market Committee, meeting today in Washington, will lower the overnight lending rate by a full percentage point or more, based on futures prices in Chicago. That would be the biggest reduction since 1984, when Paul Volcker led the central bank, and would bring the benchmark rate down to 2 percent.
Policy makers may promise more cuts if needed with a statement that warns of further risks to the economy as the housing recession breeds widening losses among banks and securities firms. The Fed took emergency steps over the weekend to stave off a financial panic, lowering its rate on direct loans to banks and becoming lender of last resort for Wall Street’s biggest dealers in government bonds.
“The Fed has moved very aggressively to deal with liquidity problems that are major,” said former Fed Governor Lyle Gramley, now a senior adviser at Stanford Group Co. in Washington, who said today’s reduction may be as much as a full percentage point. “They need to be aggressive on the monetary policy side. This is the worst crisis we have faced in more than 50 years.”
Shifting Expectations…
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