For the first time ever, The Federal Reserve cut the main U.S. interest rate to as low as zero, trying to revive credit and end the longest economic slump in over a quarter century. The Federal Reserve also turned its focus to the amount and kind of debt it will buy.
The Federal Open Market Committee said today that it “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability”. Bloomberg reported today that in a statement from Washington the FOMC said “weak economic conditions are likely to warrant exceptional low levels of the federal funds rate for some time”.
Anticipating that the Fed will buy securities to reduce borrowing cost for consumers and companies, the stock market soared. The Federal Reserve said today that it will cut the federal funds rate to between zero and 0.25 percent. New lending programs and /or asset purchases will now be standard policy.
“The focus of the committee’s policy going forward will be to support the functioning of financial markets and to stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said. According to the statement, The Federal Reserve will also purchase debt issued or backed by government-chartered housing finance companies.
With unemployment at an all time high, 6.7 percent, and new housing starts the lowest since 1947, it is apparent that drastic measures must be taken to end this deepening economic spiral. Accordingly, the Fed vote to lower interest rates this week was unanimous. Additionally, the Fed lowered the rate on direct loans to banks and securities dealers to 0.5 percent. This will set the payment that commercial banks hold on their reserves at the Fed at 0.25 percent, down from 1 percent.
The move to lower interest rates to improve the US economy has been influenced by Japan’s central bank. To encourage lending, Japan’s central bank kept its main rate at zero percent from 2001 to 2006, flooding the banking system with extra cash to offset deflation.
The Federal Reserves plan differs from Japan’s only in the way it focuses on purchases of short term debt and other assets. Senior central bank officials said that “inflation pressures have diminished appreciably” since the move to lower interest rates began. Officials also said that deflation is not a major concern at this time, noting that stabilizing the credit market is the Fed’s number one priority.
by Jon Mercer
The Federal Open Market Committee said today that it “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability”. Bloomberg reported today that in a statement from Washington the FOMC said “weak economic conditions are likely to warrant exceptional low levels of the federal funds rate for some time”.
Anticipating that the Fed will buy securities to reduce borrowing cost for consumers and companies, the stock market soared. The Federal Reserve said today that it will cut the federal funds rate to between zero and 0.25 percent. New lending programs and /or asset purchases will now be standard policy.
“The focus of the committee’s policy going forward will be to support the functioning of financial markets and to stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said. According to the statement, The Federal Reserve will also purchase debt issued or backed by government-chartered housing finance companies.
With unemployment at an all time high, 6.7 percent, and new housing starts the lowest since 1947, it is apparent that drastic measures must be taken to end this deepening economic spiral. Accordingly, the Fed vote to lower interest rates this week was unanimous. Additionally, the Fed lowered the rate on direct loans to banks and securities dealers to 0.5 percent. This will set the payment that commercial banks hold on their reserves at the Fed at 0.25 percent, down from 1 percent.
The move to lower interest rates to improve the US economy has been influenced by Japan’s central bank. To encourage lending, Japan’s central bank kept its main rate at zero percent from 2001 to 2006, flooding the banking system with extra cash to offset deflation.
The Federal Reserves plan differs from Japan’s only in the way it focuses on purchases of short term debt and other assets. Senior central bank officials said that “inflation pressures have diminished appreciably” since the move to lower interest rates began. Officials also said that deflation is not a major concern at this time, noting that stabilizing the credit market is the Fed’s number one priority.
by Jon Mercer
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