the fed needs to cut rates, ASAP

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the fed needs to make an emergency cut right now. ideally 50 bps, though more likely 25bps.

they should work rates down to zero if need be by the end of the year.

i suspect they're not doing that right now because they're gaming the vote for the bailout, but it needs to happen quickly.

expensive money is not the primary reason why lending is drying up, but if you cut rates enough, eventually greed overtakes fear.

with or without the bailout, we're headed for big trouble and the fed needs loosen more.

yes, yes, this is inflationary and would hurt the dollar. but a lower dollar means more exports and therefore more domestic production, and inflation isn't going to be a major factor anyway if we're not producing. the fed needs to get the economy moving, or everything will grind to a halt.

[wtmusic]

1. DIng. Ding. Ding.

The most prescient post of the morning.

[RUMMYisFROSTED]

2. Because 2.25% is usury?

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3. haha!

fed funds is actually at 2.00% now. it's not that it's usurious, it's that the profit isn't big enough to convince gun-shy bankers to lend. give 'em and extra 2%, by the end of the year, then hopefully that will pry open their wallets.

[Winterblues]

4. Will have zero effect on Credit Card Interest Rates

Some of those are over 30%. Who can afford such usurous rates? There needs to be new Usuary Laws placed into effect immediately if not sooner..Nothing more than ten percent ever..by anyone..

[orwell]

5. Actually...

...they will probably end up cutting rates but it will do little to stem this crisis.

This is not an interest rate crisis, but rather a growing interbank liquidity crisis. The system of interbank borrowing has locked up.

Japan lowered interest rates to zero for almost a decade and it did nothing to change their situation. It's called pushing on a string.

The fact of the matter is that there is a tsunami of bad paper out there and lowering interest rates will not change that in the slightest. What does it matter where interest rates are if there is nobody creditworthy to lend to?

Another possible secondary effect to the Fed lowering rates will be continuing depreciation of the dollar.

There is no easy way out of this. There is no magic bullet. It is going to take time to work out of this mess. During that period expect lower or even negative GDP growth, greater job losses, and more financial services firm failures...if we are lucky.

[unblock]

6. i agree, this is why the rate cuts to date have had no effect.

but we can't risk the possibility that 2% is too high. i don't hold much hope of rate cuts doing much in the absence of some fiscal action, be it the bailout or a substitute plan and/or more regulatory oversight and so on.

totally agree that the problem is trust, not rates, but if there's enough spread to be made, fear can be overcome.

as for the dollar, personally i see a weak dollar as a net plus. we've been overindulging in imports and outsourcing and that's part of the structural mess we're in now; if a weak dollar brings back jobs and gets us manufacturing and exporting, i'm all for it.

[Democrats_win]

7. please reconsider. This will hurt people who have savings accounts.

Retirees have savings accounts and they don't need this double wammy: lower rates and higher inflation.

Rate cuts are an inflationary move and that's why the FED hasn't cut rates. Higher food and fuel prices will be the result of a rate cut. The bailout itself will cause inflation; we sure don't need a rate cut too.

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12. interest rate decisions are always hard, there are always winners and losers

the fed has been doing very inflationary things for a good while now, and despite that, the dollar has come back a fair amount and inflation seems to have ebbed.

the fed's inflationary actions so far can't keep pace with the deflationary impact of the financial crunch we're in. frankly, i think serious inflation is likely to come only if whatever measures are taken actually get this economy moving, in which case you can raise rates at that point.

first priority has to be to keep the economy from locking up, which is where it's headed.

[screembloodymurder]

8. They are not doing it because the dollar would collapse.

Asia will no longer fund our government and we will be bankrupt.

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9. that's MORE likely to happen if our economy collapses

which ultimately would hurt the dollar anyway....

in the short run, treasury investors can just move out on the yield curve, there will still be interest to be made at longer maturities.

[wishlist]

10. nah, they must keep a couple aces up their sleeve to prop up market later

If they immediately lowered rates now while the bailout is going through, what would they have left to appease the stock market investors with later when market tanks again? They can't unload all of their arsenal of props quite yet.

[unblock]

13. agreed, as i said, they're gaming the bailout vote.

but from an apolitical aspect, they need to start now. personally i think they'll cut a day or two after the bailout bill becomes law. alternatively, if the bill is killed, they'll cut the minute it's declared dead.

[El Pinko]

11. It wouldn't loosen up credit because the lenders are insolvent.

And it would debase the dollar and turn the high inflation of today into hyperinflation (poverty) for most. Gas prices in particular would soar again.

I don't have a problem with lowering rates in principle, but at this point, I don't think it would help at all.

PS- We export so few things at this point that I don't think it would make much difference on that end either.