by William Neikirk
Concerned by a housing-induced credit crunch that some analysts say could send the economy into recession, the Federal Reserve decided today to cut interest rates for the third time since September.
The reduction was one-quarter of one percent. It put the Fed's benchmark "federal funds" rate, which banks charge each other for borrowing, to 4.25 percent. The central bank has reduced short-term interest rates by 1 percent since Sept. 18.
There was one dissent by a Fed member who thought that the central bank should reduce interest rates even greater. Many financial market participants, worried about a downturn, had hoped for a bigger decrease as well.
The stock market declined immediately after the decision was announced.
The Fed cited an "intensification" of the housing correction that has spread to other areas of the economy. Business and consumer spending has softened, it said.
But the central bank omitted a "balance of risks" statement in its news release. In the past, it has signaled to Americans whether it viewed inflation or economic softness as the greater risk. It also said it will be keeping a close eye on inflation developments.
There was no clear signal of another reduction at its next meeting.
The Fed also cut its discount rate, the interest rate it charges financial institutions for direct borrowing from the central bank, by a similar one-quarter of one percent. Many analysts had hoped for a bigger increase in the discount rate so that financial institutions could have a greater source of "liquidity" or funds during the housing crisis.
This is the Fed's release:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.
Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.
In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.
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Comments
What's for dinner tonight?
The Books!
How would you like yours?
Medium well?
Well?
Someday, the real bottom line will appear.
Posted by: San Miguel | December 11, 2007 5:19 PM
Even the Feds can't save bu$h's floundering economy. Are YOU better off today than you were eight years ago. (Bruthiee, terriee and pillow can't answer because we all know they live in a fantasy world, are gods among men, slay dragons with their bare hands, and earn 100% interest on their well endowed investments, plus work MUCH MUCH harder than anyone who posts on the Swamp.)
Posted by: rncbs | December 11, 2007 7:00 PM
The economy was much better under Clinton then either Bush's, but the only ones who disagree are the rich conservatives who cashed in on unecessary tax cuts they didn't deserve.
Trickle-down? Conservative economic fantasy. They're still laughing at all the Americans who bought into that bs to get their votes.
Posted by: RomanB | December 11, 2007 7:53 PM
Oh rncbs, er Deranged and Demented Johnny E., yes I am better off than I was 8 years ago. Bush has presided over a growing economy for every quarter since the beginning of 2002, nearly 6 years now!
Funny, though, that the LIBune would have a Swamp item when the stocks drop nearly 300 points, but NOTHING when the market went up 335 points last week. Gee, Willie Niekirk, Chief of the I Hope We Get A Recession Journalists, why nothing from you when there is good economic news?
Posted by: John D | December 11, 2007 8:20 PM
mcBS,
Yes I have had better earnings under President Bush than under President Clinton. As you stated, my success isn't due to who is in the White House. You might be laerning little grasshopper.
RomanB,
Was the economy better under Clinto than Bush 41 and 43. Definitely 41, 43 is close. However, Clinton's policies didn't do anything to assist the economy. He was in the right place at the right time with consumer acceptance of personal computer/internet.
Posted by: Terry | December 11, 2007 9:16 PM
Oh rncbs, er Deranged and Demented Johnny E.
_______________________________
not
Posted by: RNCBS | December 11, 2007 11:14 PM
Oh and BTW - so predictable! Like a rat in a amze.
Posted by: RNCBS | December 11, 2007 11:15 PM
I loved watching William Neikirk talking on WGN News tonight. He even said "some think we might have a two-year recession!!!!!!!!!" Well, I haven't heard that anywhere but in William Neikirk's mouth. Who says that William? Who are the "some think"? You really want a recession don't you William? And you will concentrate only on negative economic news, gloss over good economic news and even make up stuff to help your desire for a recession, won't you William? William "I love Recessions" Neikirk!
Posted by: John D | December 11, 2007 11:17 PM
[quote]
Bush has presided over a growing economy for every quarter since the beginning of 2002, nearly 6 years now!
Posted by: John D | December 11, 2007 8:20 PM
[/quote]
Hee is the real story from someone who knows what they're talking about:
"Wages, adjusted for inflation, have stagnated: the real hourly earnings of nonsupervisory workers, the most widely used measure of how typical workers are faring, were no higher in July 2007 than they were in July 2003.
Meanwhile, benefits have deteriorated: the percentage of Americans receiving health insurance through employers, which plunged along with employment during the early years of the Bush administration, continued to decline even as the economy finally began creating some jobs."
source: http://select.nytimes.com/2007/09/10/opinion/10krugman.html?n=Top/Opinion/Editorials%20and%20Op-Ed/Op-Ed/Columnists/Paul%20Krugman&_r=1&adxnnl=1&oref=slogin&adxnnlx=1190213596-PxM8e0BfQwDu5Nx7RE0s+g
Remember - Paul Krugman is an economist; Geographically Challenged Dumb Dumb Little Johnnie D, "the Joseph Stalin of Streamwood" never was and never will be an economist.
Posted by: BC | December 12, 2007 9:11 AM
Let us not forget to give some credit to Alan Greenspin
Posted by: San Miguel | December 12, 2007 9:18 AM
But Terry, Clinton also had to weather 18 terrorist attacks and several devastating hurricanes. I'm confused. You absolve Bush because of Katrina and 9/11 and if I'm still correct PCs and the internet are still around and are much cheaper, faster, and more powerful so consumers still accept them. Didn't Google go public while Bush was in office? Spin some more robot.
Posted by: john | December 12, 2007 9:58 AM
Cutting rate at .25 is not exactly what Wall Street was looking for. Everybody knows it needs to be at least .50 and going down.
The write off's will be years to come for most major banks and institutions. Most homes are not worth $500,000 to $1,000,000 as indicated on paper. Hence, the paper tiger economy.
The Millionaires already have their homes. It is the middle class and poor that can't afford rising home prices. The trickle down economy theory of the Republican doesn't hold true once again. The rich do not spend; they already have what they need. It is the middle class and poor that spends money.
Think of it? Why would a millionaire by another yatch when he has 3 or 4 already?
Posted by: Lou | December 12, 2007 10:18 AM
Idiot-for-Life BC, you're trotting out Paul Krugman? Very, very funny. Krugman has all the credibility of Gov. Rod and Crooked County Board Prez Todd Stroger, combined.
By the way, Idiot-for-Life BC, you still think Cuba has nothing to do with the Gulf of Mexico??
Posted by: John D | December 12, 2007 11:17 AM
JOhn,
How big of an impact did those 18 terrorist attacks and several devasting hurricanes impact the NATIONAL economy?
Were the financial markets shut down after any of the terrorist attacks? If so, for how long? How much did the Dow drop?
How much of the nation's energy supply was shut-in during the most severe of those huricanes? How sdoes that compare with amount of oil and natural gas shut in from Katrina and Rita?
Lou,
What did the Supply-side tax cuts ("trickle down economic theory") have to do with the housing crisis? I want to hear this brilliant explanation.
Posted by: Terry | December 12, 2007 7:22 PM