I was just reading an Article in the PilotOnline entitled, “Fed expected to cut rates for 2nd time”, which talks about the possibility of the Federal Reserve cutting interest rates for the second time in as many months.
After cutting interest rates by a half of a point in September, Federal Reserve Chairman Ben Bernanke met with colleagues this week to discuss the possibility of cutting interest rates by another quarter point. This comes in the face of rising oil prices and a sluggish housing market. It is an effort to help strengthen a weakening economy in the hopes of stemming further economic turmoil. Numerous analysts predict this will not be the last cut by the Feds in their quest to help the economy through these current obstacles. This cut in the federal funds rate that banks charge each other allows banks to cut their prime lending rate, which will cut consumer and business loans by a half point.
While the economy suffers from the worst slump in housing markets in over 20 years and oil prices soar to over $90 a barrel, this interest rate cut can go a long way towards helping get our economy back on its feet. The feds are gambling on the fact that these cuts will also help stimulate consumer spending which has tapered off in the last few years due to reduced consumer confidence. These cuts should also help to reassure investors by helping to reduce defaults on sub prime mortgages.
With analysts placing the chances of a recession around 40% and the fact that every downturn in the housing market in the last sixty years, except two, have led to recessions, the Fed is expected to cut rates further during their year-end meeting in December or January.
Let us keep our fingers crossed that this is not too little nor too late.