The Federal Reserve (Fed) lowered the Fed Funds Rate today by a 1/2 point to 3 percent. This is the second interest rate cut in a week, as the Fed made a surprise 3/4 point rate cut last week in an effort to stave off recession.
The following is an official press release from the Fed regarding its decision today, and a translation of the econo-speak for the rest of us by Bob Walters, Chief Economist for Quicken Loans:
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FEDERAL RESERVE press release
Release Date: January 30, 2008
Fed: For immediate release
Bob: Now
Fed: The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
Bob: Those 10 crazy cats who determine short term rates decided to lower the short term rate by ½%.
Fed: Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
Bob: The Fed is saying here that they know it’s getting tougher for people to borrow money as the rules for borrowing money have gotten tighter. They also point out that homes are getting tougher to sell and that more and more people are being laid off.
Fed: The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Bob: The Fed says they see the prices of stuff (food, clothes, Slurpees…) won’t be rising as quickly in the next six months.
Fed: Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Bob: The Fed is hoping that today’s reduction in short term rates will make it easier for people to borrow money, build stuff and create jobs.
Fed: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.
Bob: They did not all agree. Richard W. Fisher thought no change was needed.
Want more? Check out what the Fed cut means for you and Bankrate’s Smart Mortgage Strategies After Fed Cut.
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