Federal Reserve reverses course and cuts key interest rate by half-point to 1.5 percent.

[maddezmom]

Source: AP

Federal Reserve reverses course and cuts key interest rate by half-point to 1.5 percent.

Read more: http://ap.google.com/article/ALeqM5ijDA5bgxiHlTvS_r-SSjskS1Tq1wD93M97DG2

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Fed orders emergency rate cut to 1.5 percent

WASHINGTON—The Federal Reserve has ordered an emergency interest rate cut of a half a percentage point to cope with the worst financial crisis since the 1929 stock market crash.
Fed Chairman Ben Bernanke and his colleagues ratcheted down their key rate by 0.5 percent, to 1.5 percent. The action revives the central bank's rate-cutting campaign which had been halted in June out of concerns that those low rates would worsen inflation. Since then, however, economic and financial conditions have dangerously deterioriated, forcing the Fed to reverse course.

more:http://www.mercurynews.com/markets/ci_10666664

[Loge23]

1. Here comes the kitchen sink

Excuse the pun - sink.

[muriel_volestrangler]

2. 6 international reserve banks have cut by the same amount, at the same time

Central banks cut interest rates

Six central banks - including the Bank of England - have cut their interest rates by 50 basis points.

The UK rate move - which had not been expected until Thursday - puts interest rates at 4.5% from 5%.

The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank trimmed its rate from 4.25% to 3.75%.

The central banks of Canada, Sweden and Switzerland all took similar action in the co-ordinated move.

http://news.bbc.co.uk/1/hi/business/7658958.stm

[Gman]

3. If it gets much lower

the Fed is going to pay interest for banks to borrow money.

[high density]

5. Considering inflation...

I think we're already at that point and then some.

[Doctor Cynic]

16. That's already happened...

Interest rates have been negative for months when you adjust for inflation.

[aquart]

4. And how does that restore CONFIDENCE???

Nothing, meanwhile, is being done to restore trust.

[DallasNE]

6. I Don't See How This Helps

While it makes sense for Europe to cut their higher rates I don't see how it helps to cut our rate to 1.5%. It looks like Bernanke felt that he had to appear to be doing something, anything -- even if it makes no sense. Right now policy makers are just throwing stuff against the wall hoping that something will stick. It is not a pretty sight.

[ihelpu2see]

7. I risk sounding like McCain, I am not a real expert on the Economy. But by

cutting the rate more, while passing a bill allowing for over $700bln bail-out, wont this move just allow for more money to be printed and further DEVALUATION of the US dollar?

any one, any one, Bueller....

[Virginia Dare]

9. Yes, at this point they're willing to take runaway inflation..

over a complete economic collapse. It may come to that anyway.

[On the Road]

11. Cutting Rates Generally Has a Positive Effect

It's what every central bank does to halt a downturn.

However, as you point, interest rates weren't really the nature of the problem. As a talking head said yesterday, the crisis is more about quantity and quantity, meaning the availability of capital as opposed to interest rates. They are trying a little of everything, but it's about all they can do.

[Virginia Dare]

8. Welcome to hell on earth if this doesn't work..

this is literally the hail mary pass by Bernanke.

[mrJJ]

10. No Go

Sorry to say it wont work. A bump maybe....thats it

[WriteDown]

12. If this is a Hail Mary pass....

wouldn't that apply to the other banks that made the same move? I think the EU made the original suggestion.

[Virginia Dare]

13. As I understand it, this is the hope..

that all banks around the world will make the same move, and get the credit markets moving again. We'll see.

[L0oniX]

14. I don't get it. Discover just offered me a $15000 loan and Citi offered me a $6500 loan and ...

I keep getting credit card offers like the latest one which was a fixed 8.9%. WTF?

[Anarcho-Socialist]

15. It's to get cheap money back into Wall Street

In the past, this would cheer the financial sector as cheap borrowing means more capital floating around the stock market (equalling higher stock prices and returns) however I judge that this won't be effective in the current situation.

Previously one of the side effects of this type of rate cutting was to cause an increase in speculation, one of the causes of the current economic crisis. Rate cuts meant that financial gamblers could take out huge loans cheaply and play market psychology in order to reap short-term profits for investment companies and large commissions for individual stock brokers.

However these rate cuts will not change the economic situation much. The contradictions that caused the current economic crisis still remain and can't be paved over by cheaper loans. Stocks aren't going to bring returns when everyone's profits are falling and Main Street is cutting expenditure due to personal debt and job losses. We're in a vicious cycle.

Governments will inevitably have to go after the sector of society which is awash with cash, but loathes to pay taxes. Super-rich individuals and companies who look for loopholes to pay less tax than the working and middle class must be penalised. The majority cannot afford to pay for the higher government spending needed to increase demand in the economy, but the personal wealth (siphoned from the rest of society I will add) of the super-rich could do that and so much more.

It will be seen if governments have the political will to tackle the super-wealthy, because if they don't then it will be the misery of us all.