Federal Reserve Chairman Ben Bernanke (Credit:Chip Somodevilla /Getty Images)
The
FOMC dramatically lowered the
Fed Funds rate to "between 1/4 points and zero," the lowest rate in its history. This means that the Fed has lost control of interest rate regulation, and must now use other tools at its disposal to try and stimulate the economy out of
recession. Federal Reserve Chairman
Ben Bernanke has said the Fed may buy toxic mortgage-backed securities from banks to get them lending again. At the same time, the FOMC lowered the
discount rate to .5%.
The Federal Reserve knows it must continue to take swift and aggressive action to keep the global economy from falling into a more serious recession. Since oil prices have fallen this fall, the Fed is not concerned about the threat of inflation. The Fed's actions further signal its willingness to support the financial markets with expansionary monetary policy. (Source: FOMC statement, October 29, 2008)
What It Means to You
The Fed's goal is to lower
LIBOR and keep
adjustable-rate mortgages affordable, in an attempt to keep more mortgages from defaulting. The Fed is basically acting as the bank of last resort, which in this case means the only bank willing to lend. Many of the programs the Fed has announced, such as the
Commercial Lending Program and a program to buy
toxic credit card debt are only now being implemented, and so have not yet had a chance to take effect.
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Comments
At what point do we start to realize that we are in fact heading for another Great Depression. The majority of our population has significant debt and now the Fed is trying to slow what seems to be the inevitable, another Great Depression. As we all stop buying, our basic economy hits the toilet, well goes further down it anyway. Don’t you think?
Rob,
Here is what is weird about the current economic crisis — it is all based on confidence. So, if everyone thinks we are heading into a depression, they will act like the banks, and hoard money, and we will go into a depression. If everyone thinks we are going to pull out in a few months, they will confidently purchase what they need, prepare for a better job (and get it!), and invest wisely.
So, the answer is that it is really up to each one of us to answer that question for themselves — am I headed for a Great Depression, or for a better life that truly meets my needs?
Kimberly
The rumour is the the UK will be lowering their rates to a similar level.
so what then – what other measures do they have at their disposal? 2009 is going to be a very interesting year.