Fed cuts interest rate again

Thursday, January 31, 2008 at 12:57am

The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.

“Downside risks to growth remain,” the Federal Open Market Committee said in a statement after meeting Wednesday in Washington. In a reference to the volatility of the past five months, the Fed added that “financial markets remain under considerable stress and credit has tightened further for some businesses and households.”

The dollar tumbled and Treasury notes weakened after the decision as traders anticipated another reduction at the Fed’s March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990.

“They’re going full-bore trying to keep the economy from recession,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Conditions in the market place are the driving force right now. Factual data support it.”

Fed officials said they will continue to assess financial markets and the economy “and will act in a timely manner as needed.”

Chairman Ben S. Bernanke and the Fed’s Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent.

Dallas Fed President Richard Fisher dissented from Wednesday’s decision, preferring no change.

Policymakers presented revised three-year economic forecasts at this week’s gathering. The Fed will release the projections along with minutes of the meeting on Feb. 20.

Wednesday’s Commerce Department figures showed the Fed’s preferred inflation gauge rose at a 2.7 percent annualized rate last quarter. Fed officials in October forecast the personal consumption expenditures price index minus food and energy would rise 1.6 percent to 1.9 percent in 2010, offering a measure of their longer-term inflation objective.

“The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully,” the Fed said in Wednesday’s statement.

Fed policymakers have struggled since August to contain the economic damage sparked by the worst housing recession in a quarter-century. The world’s largest banks and securities firms have recorded more than $133 billion in asset write-downs and credit losses since the beginning of 2007, which analysts blamed on weak and fragmented supervision and poor credit analysis.

Foreclosure rates rose 75 percent in 2007 as a record amount of adjustable-rate loans to borrowers with weak or limited credit histories reset to higher rates, RealtyTrac Inc. data show. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November from a year earlier, the 11th consecutive decline, the S&P/Case-Shiller home-price index showed yesterday.

“We are in a historic housing bust right now, comparable to that of the Great Depression,” said Robert Shiller, chief economist of MacroMarkets LLC in Madison, New Jersey, who co- founded the house-price index. “The unraveling of that has unpredictable consequences.”

Fed officials waited until September to cut the benchmark lending rate, even though premiums on corporate bonds and lower- rated securities began to climb in late June.

Bernanke used a Jan. 10 speech to update the public. “The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced,” he said, breaking with the Fed's statement a month earlier which only expressed “uncertainty” about the outlook. He pledged “substantive additional action as needed."

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By: frank brown on 12/31/69 at 7:00

Anyone in this country who has a net worth of less than six million dollars and no chance of reaching that level within the next 10 years is going to have some hard times ahead.

By: Vandy1975 on 12/31/69 at 7:00

I'd like to see Bernanke in prison.

By: mccullochd on 12/31/69 at 7:00

The rate of inflation is now just .50 less than the interest rate. This could lead to a bigger mess than the sub-prime meltdown.

By: Blanketnazi2 on 12/31/69 at 7:00

indeed, mccullochd. vandy, greenspan is also guilty of some poor choices.http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/17/ccview117.xml

By: gdiafante on 12/31/69 at 7:00

I better hurry up and go put something on my credit card to stimulate the economy!!

By: Blanketnazi2 on 12/31/69 at 7:00

Just wait until you get the "rebate" check! Just think of all the Made in China junk you can buy at Walmart!

By: gdiafante on 12/31/69 at 7:00

I think the Prez will be mad at me because that is either going in savings or paying off a bill. Sorry W!

By: Blanketnazi2 on 12/31/69 at 7:00

Yeah, it's going into savings for me. I get the distinct feeling I'll be needing it further down the bumpy road....

By: Blanketnazi2 on 12/31/69 at 7:00

The forecast calls for rain......

By: Vandy1975 on 12/31/69 at 7:00

Want a good afternoon laugh? From Wikipedia:"Bernanke is particularly interested in the economic and political causes of the Great Depression, on which he has written extensively. On Milton Friedman's ninetieth birthday, Nov. 8, 2002, he stated: "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."The pimp Bernanke otherwise has nothing in common with Friedman, and sure as I'm sitting here he'll destroy the economy in general, and the middle class in particular, in this foolish effort to bail his pals in Big Banking out of their greed and stupidity.

By: gdiafante on 12/31/69 at 7:00

They can very easily solve this problem by buying everyone a 42" Plasma. That would ensure that the money goes into the economy and no one saves it. Note to Congress: Preferably by Sunday please. :)

By: Blanketnazi2 on 12/31/69 at 7:00

Ah, the Federal Reserve. You do realize that is a private entity, right?

By: Blanketnazi2 on 12/31/69 at 7:00

Vandy, are you aware of McCain's background in regard to the S&L debacle in the '80's? Look up and read about the Keating 5.

By: Vandy1975 on 12/31/69 at 7:00

I'm impressed that you have such a boner for me, Blanket, even though you haven't a clue about anything I write.I'm well aware of McCain's role in that banking collapse, and I'd like to see him in prison too. But I've never posted a single word about either of them, so I can't begin to imagine why you're addressing McCain and Greenspan comments my way.

By: Blanketnazi2 on 12/31/69 at 7:00

Just making conversation. I'm not intending to be argumentative. And yeah, I think you're sorta cute in a boyish sort of way now that you mention it.

By: Vandy1975 on 12/31/69 at 7:00

Get in line, pal. :)

By: Vandy1975 on 12/31/69 at 7:00

How about this: Henry Paulson, secretary of the treasury, was previously chairman of Goldman Sachs. Any potential for massive abuse of position there? Perish the thought... it's a universal truth that everyone in government is there strictly for the good of the nation.

By: monitorman on 12/31/69 at 7:00

So, those same folks who wish to underfund every worthwhile service the government performs now want government to prop up their, "free market," by throwing more cheap cash their way?These are the same folks who give huge year-end bonuses and severance packages to managers of failing companies.Three-card Monty, anyone?