Fed Cuts Rates AGAIN!
In response to fears of a deepening of recession, the Federal Reserve has dramatically dropped the key interest rate. The move is intended to result in a lower cost of borrowing. This, in turn, should stimulate consumer spending. There have been three rate cuts in the past three months.
What effect will this have on various facets of the economy? The consumer interested in acquiring a new loan, refinancing a mortgage or with an adjustable rate mortgage will benefit from the Federal Reserves cut in the key interest rates. Many of the major banks cut their interest rates from 6% to 5.25% in response to the Federal Reserves actions.
Consumers with credit cards will probably eventually see a lowering of their interest rates. This will, most likely, not occur immediately. Usually, the credit card companies have a delay time of about 3 months before they react to reductions in interest rates.
Savers will not benefit as the returns on their savings will be down as a result of the interest rate cuts. The return on investment on C.D.s, money market funds and municipal bonds are down also at this time.
The population that will be hit the hardest from the economy and the interest rate cuts are the retirees and others living on a fixed income. Inflation has been spiraling for necessities such as gas, food and heating bills while the return on savings has gone down.
The stock market reacted favorably to the Federal Reserves aggressive course of action. Wall Street responded with the largest gain in five years with the Dow Jones industrial average up 420.41 points on Tuesday.
Although not all of the population will benefit, hopefully the Federal Reserves proactive response to the ailing economy will be effective in curbing a worsening recession.
