So much for the Federal Reserve holding steady and keeping the federal funds rate at 5.25% for another month.
As I’m sure you’re well aware by now, Ben Bernanke and the Federal Open Market Committee today announced that they had lowered the federal funds rate by 50 basis points (most economists expected a 25 basis point drop) to 4.75%. They also lowered the discount rate by 50 basis points to 5.25%.
This development more or less shows that fears of an economic slow down in the midst of the worst housing downturn since the Great Depression has replaced inflation as the Fed’s number one concern.
I suppose that when you look at the most recently released data, which shows that foreclosures are continuing to jump month over month, home builder “confidence” has fallen to 16 year lows, and the fact that inflationary pressures (for the time being) appear to be easing, it’s really not that shocking that the Fed made such a drastic move – and made it rather apparent that additional cuts would come if needed.
There are several things that concern me regarding the rate cut (see my previous article), but if this ultimately ends up working out, it was well worth the risk. If it doesn’t, then I’d like you to go to Wikipedia and learn about hyper inflation.