More Fed Rate Cuts...

[kork13]

Fed cuts key rate below 1% for first time - Dec. 16, 2008

wow..... Thoughts, everyone? maybe time to start buying some Euro...

question, though--this article states the new interest rate is "a range of between zero percent and 0.25%".... don't they normally state an exact rate? i'm a bit confusticated by this....

[sweeps]

It is quite remarkable, but not unexpected. Inflation is very low again, and worries about deflation have returned.

Regarding the range, this is CNN Money's take:

John Silvia, chief economist at Wachovia, said he thinks the Fed set a range for the rate rather than give a specific number as an acknowledgement that it has trouble precisely controlling the rate in the market when rates are this low.

The effective rate, which is based on market trades of Treasurys and excess reserve balances between banks on a daily basis, has been regularly slipping below the Fed's stated rate for a couple of months now.

Silvia said it is possible that the effective fed funds rate could even fall below zero on occasion and the Fed can "live with that" because the central bank is "going to do whatever it takes" to prevent the economy from deteriorating further.

[Broken Arrow]

I don't know exactly what they mean by "between 0% to 0.25%" yet either. (edit: I heard that it's a range because 0% may not be possible due to implementation technicalities. But at this level, the effect is still the same, which is that the Fed has abandoned the interest rate, and plan to keep it at this level for some time.)

However, I do know that the market staged a rather substantial rally due to this news.

I think the Federal Reserve did the right thing considering the grim economic news such as the almost-equally impressive drop in the CPI for example. I especially applaud Bernanke for being so proactive and aggressive against any further deterioration in the market.

What will be really interesting to watch is whether Bernanke's other ideas, such as flooding the market with "unlimited liquidity" will really help ease the recession. I can't help but muse how lending was the root cause of our economic crisis to begin with, but of course, total seizure of lending is the problem not the excess of it.

But anyways, I have to get back to work....