Bankruptcy & Foreclosures

Well it appears as though the Fed’s course of action in slashing rates is yielding impressive results to the stock market. The question on everybody’s mind now is for how long?

Today the Fed announced but another cut to interest rates, this time some three quarters of a percentage point. No sooner was this announcement made the market witnessed quite a hike in direct relation. In fact the Dow Jones Industrial Average jumped 300 points.
This latest slash has reduced the federal funds rate (the interest that banks charge each other) down to 2.25%, the lowest it’s been since 2004! It also marks the second back-to-back cuts of three-fourths of a percentage point. While there have reports of conflicting views within the Fed itself as to whether these rate cuts truly help the economy in the long run, this action caps an unprecedented period of Fed actions aimed at trying to stabilize the market and prevent full-blown recession.

On the flip side of this economic stimulation is the inevitable truth that rising yields is causing domestic inflation as well as a slumping dollar value on the global scale. The Wall Street Journal reports that Wholesale prices rose again in February due in part to another hefty increase in energy costs that more than offset falling food prices. Aside from food and energy, prices shot up at the fastest pace in 15 months. They conclude that this represents a stark reminder that inflation risks remain despite the economic slump.

When the Fed announces rate cutes, I typically try to include how this news affects consumers in their daily lives. The truth is that rate cuts usually take months to fully circulate through the economic cycle, but there is a chance that consumers and businesses could benefit quickly. The cut will have a major influence on short term lending (particularly overnight loans) as again this is the interest banks charge each other.

About the only negative to this announcement is that it confirms suspicions that that the nation’s chief economists are clearly concerned about the economy enough to take drastic measures despite a cool poker face in their press conferences.