aaaWings News

Today, the Federal Reserve has slashed a key interest rate by half a percentage point to 1%, down from 1.5%, as it attempts to revive an economy hit by a long list of maladies stemming from the most severe financial crisis some say since the “Great Depression”.

The funds rate has not been lower since 1958, when Dwight Eisenhower was president.

The cut marked the second half-point reduction in the funds rate this month. The Fed slashed the rate by that amount in a coordinated move with foreign central banks on Oct. 8.

In a brief statement explaining Wednesday’s action, the Fed said that the “intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and business to obtain credit.”

The central bank said that “downside risks to growth remain” holding out the promise of further rate cuts if needed. The rate-cut decision was unanimous.

Federal Reserve Chairman Ben Bernanke and his colleagues pledged that they would “monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.”

Many analysts do not see that this will greatly aid the consumer.  Typically, after a Fed Reserve cut in rate, it takes 9 months to ‘trickle down’ to the consumer in the form of more aggressive bank and creditor lending standards.  It has been 14 months since the last significant rate cut to the Fed’s Key Rate (the interest rate charged by the Fed to banks for overnight loans), and consumer’s have still to see the ‘trickle down’ effect.

Many economists feel that banks will continue to horde assets, in an attempt to overcome their continually accruing losses.

Hopefully, these economists and analysts will be wrong, and banks will increase mortgage lending and credit grants.

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