Fed Funds Rate Lowered to 4.5% - What Does It Mean?

Today, the FOMC lowered the Fed Funds rate 1/4 point to 4.5%, and the stock market went up 130 points in approval. In addition, the Fed added $41 billion in liquidity to its reserves, the largest infusion since 9/11. The housing market decline and subprime mortgage mess have the Federal Reserve worried about a possible recession. The Fed's actions signal a temporary return to expansionary monetary policy. (Source: FOMC statement, 10/31/07)

What It Means to You

The Fed's actions will probably put downward pressure on the dollar, thus further increasing inflation in imports, especially oil prices. In fact, oil price futures rose to near $95 a barrel.

However, the rate cut should help keep adjustable-rate mortgages affordable, which may help the housing slump.

Related Reading

• A Primer on Current Federal Reserve Interest Rates
• A Primer on the Subprime Mortgage Crisis
• Dollar Decline or Dollar Collapse?