Economic quicksand
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economy, Mortgage Interest Rates, rate cuts March 18th, 2008Fed may decide to make rare 1% interest rate cut; Analysts call step far from cure-all
The Federal Reserve could make one of the biggest interest rate cuts in its history today as it tries to jolt the US economy from a financial crisis that has so far resisted all efforts to solve it.
Many economists expect Fed policy makers to cut the central bank’s key interest rate by 1 percentage point, but they worry even this reduction won’t halt the erosion in confidence undermining the economy. Lower interest rates, which aim to boost the economy by enticing consumers and businesses to borrow and spend, provide little help if lenders aren’t loaning money out of fear they won’t be repaid.
“Banks are calling in loans, not making them,” said Gus Faucher, director of macroeconomics at Moody’s Economy.com in West Chester, Pa. “The traditional monetary policy of cutting interest rates isn’t very effective in this environment.”
The Fed has taken a number of extraordinary steps recently to shore up the economy and keep the nation’s financial markets from freezing up from a lack of capital. On Sunday, it moved to prevent the collapse of Wall Street firm Bear Stearns Cos., by approving its sale to a rival investment bank, and providing as much as $30 billion in backing for some of Bear Stearns assets. But now analysts said the central bank may be reaching the limit of its powers because of eroding confidence.
Tags: economy, Mortgage Interest Rates, rate cuts
