More Rate Cuts = More Money In Our Pockets
Faced with increased talk of economic recession, the Fed made its second interest-rate cut this week today by slashing short-term rates by a half-percentage point.
This slash affects the federal funds rate – which is responsible for determining interest that consumers pay on their credit cards, home equity, and auto loans. This most recent rate cut pulled the rate down to 3.0% from 3.5%.
To date the Fed has never lowered the federal funds rate below 1 percent although word from many analysts is that a series of half-percentage point rate cuts (like the one that occurred today) would get rates down to such a low level in a matter of months.
This is good news to you and I as the federal funds rate slash will show up in the interest we pay on just about every loan, however, this trend puts a lot of pressure on the Federal Reserve. At 3.5% the rate is now less than inflation over the past year, meaning that the interest rate is in actuality a negative.
Despite these cuts, the White House continues to deny that the situation is as serious as it appears claiming that a report on fourth-quarter gross domestic product released earlier today does not affect its outlook.
The Department of Commerce tells a slightly different tale in their report showing the economy grew at an annual rate of a mere 0.6% from October to December (opposed to a annual growth rate of 4.9% over the three months prior).
Meanwhile the economic stimulus plan marches on amidst tax season. These are days where consumers benefit by tax rebates and rate cuts but must keep in mind that these incentives are being implemented in effort to boost spending- the only surefire measure to counteract a recession (whether the White House wants to admit it or not).
