Posted on 08/17/2007 6:34:18 AM PDT by jdsteel
Fed Approves Reduction in Discount Rate Friday August 17, 8:55 am ET By Martin Crutsinger, AP Economics Writer Federal Reserve Approves Half-Percentage Point Cut in Discount Rate on Loans to Banks
WASHINGTON (AP) -- The Federal Reserve, declaring that increased economic uncertainty poses risks for U.S. business growth, announced Friday that it has approved a half-percentage point cut in its discount rate on loans to banks.
The action was the most dramatic effort yet by the central bank to restore calm to global financial markets which have been roiled in the past week by a widening credit crisis.
The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks will be lowered to 5.75 percent, down from 6.25 percent.
The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year.....
(Excerpt) Read more at biz.yahoo.com ...
Well, so far, it seems to be having the desired effect. The market’s up over 300 points in the first minutes of trading.
It’s what the doctor ordered. Everyone was looking for the Fed to do something. Now they have, and it seems to have worked. At least, in the short term. We’ll see how long it lasts.
Countrywide was facing bankruptcy without this move. CFC’s short term paper costs them 6% to 6.5%...now banks can use the Fed’s discount window, if need be, at 5.75% to loan to CFC profitably in unlimited amounts.
...but the Fed only acted after Tokyo was down 5% and when Hong Kong was down 10% (Hang Seng rallied as news leaked).
Which is to say, The Fed is paying more attention to foreign markets than to the U.S. credit crunch.
Still, any way that we can get rate cuts is worth taking right now.
Don’t call it a bailout though. The Fed dropped interest rates on the last day of Option Expiration week, that wasn’t a bailout. They just dropped rates. Companies like Countrywide will find it easier to business but that was just a coincidence. It wasn’t a bailout!
The bone will be eaten quickly and the dog will be hungry again.... The market has been on a leveraged tear for a while and this may help for a day or two, but another piece of bad news will start the cycle all over.
That’s because only 2 things drive the markets: Greed and fear.
The Fed’s job is to provide liquidity.
You have to have such a Fed when you have a fiat currency.
Call it a bailout. Call it whatever. It’s routine. It’s expected. It’s their job.
I don’t know if you’re being entirely sarcastic. The Fed’s move, IMO, is nothing if not proof positive that the Fed is beholden to the money center banks who are its’ stockholders. The Fed cannot change the earth’s rotation! Asian markets open and close before US markets and the drop in Asia was (again, IMO) due to the explosion in the Yen; the yen carry trade is the underpinning of most of the world’s financial system as presently configured. As bad as things are in the financial (not necessarily economic) system, if the ability to borrow yen at 1/2% and lend it long at much higher rates went away, we’d be in a massively more precarious position than we already are.
Do you think the banks were given an extra hour to trade yesterday via an early whisper of this rate cut, causing the 300+ point swing late in the day? Naaah.
I sure hope you are right regarding Bernanke’s stomach. I fear more loose money more than I fear a short term credit crunch.
A credit crunch is over-due. Those who took bad risks should lose everything, if necessary. Those of us who were moderate in our acceptance of risk should not have to bail out the excess risk takers through loose money and resulting inflation.
The Fed needs to hold the line. We have had far too many years of easy money. The dollar has fallen against baskets of goods, baskets of currencies, and gold. Inflation, while currently down a bit, was running hot last year.
Let the chips fall, and get this bust taken care of quickly with as much blood in the streets as necessary. Fear and loss are the restraints against infinite profligacy.
Very interesting. Good. Thanks to all contibutors.
Entirely sarcastic old sport. When everything in the market completely erased 3% losses in one afternoon in the current market conditions with absolutley no warning, it’s clear that this had been leaked.
Seems like how well the economy is going is measured by what the stock market does. We’ll know next election when voters check their own ‘portfolio’.
this should be in Breaking News...
How many rates does the Fed deal with?
Regrettably, I’m inclined to agree with you. Years of Greenspan’s 0% discount rate and flooding the markets with cash has had it effects. We must now endure the pain.
(Do you write the editorials for the WSJ? Your commenst mirror theirs.)
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