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How Low Can the Fed Go?

The Federal Reserve is pulling out most – if not all — of the stops to thaw credit.  The central bank has cut its federal funds rate for overnight borrowing to just 0.25 percent, the lowest level ever.  But the move is likely too little, too late because the problem is not the lack of capital — but a lack of confidence.  Marginal rate cuts won’t help commercial real estate.  Rather, the buy-back of real estate securities and extending credit are needed to fuel recovery.

The Fed’s Open Market Committee had been expected to cut the fed funds rate to 0.50 percent, so the drop was a bit of a surprise.  “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the statement said.  Possibilities are the ongoing purchase of agency debt and mortgage-backed securities, as well as the “potential benefits of purchasing longer-term Treasury securities.”

http://www.nytimes.com/2008/12/17/business/economy/17fed.html

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