Fed slashes rate again, nearing uncharted waters

[babylonsister]

Fed slashes rate again, nearing uncharted waters

By Kevin G. Hall | McClatchy Newspapers


WASHINGTON — With a half-point cut to its benchmark lending rate Wednesday and a signal of possibly further reductions, the Federal Reserve again finds itself approaching new territory.

The rate-setting Federal Open Market Committee knocked down the federal-funds rate — the amount charged for overnight lending between banks — to 1 percent. In a tandem move, commercial banks lowered the prime rate by a half point to 4 percent.

The prime rate is what they charge their best customers.

The Fed also signaled a willingness to go further, even though it's never lowered its benchmark target rate below 1 percent, a level that almost would be tantamount to giving money away. Such a move could spark the economy, but also could invite bad lending because there's little cost to spending cheap money.

The last time the fed funds rate was this low was a period from June 2003 to June 2004, and the low cost of borrowing money then created the housing bubble that led to today's collapse in housing prices.

Before that, the last time the rate stood so low was in 1958, during the second term of Dwight D. Eisenhower.

In both instances, rates didn't go lower. But Wall Street is now rooting for even further cuts to the benchmark rate, lowering the cost borrowing of businesses and consumers alike.

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http://www.mcclatchydc.com/251/story/54959.html

[roamer65]

1. They'll be at 0% by early next year.