Saturday, August 18, 2007

The Fed acts

I can only say my jaw dropped when I read the news yesterday morning that the Federal Reserve lowered the the discount rate. As this story in the post stated:

The Federal Reserve cut a key interest rate yesterday, trying to ease a worldwide credit crunch, and said for the first time that it viewed turmoil in financial markets as a major risk to the U.S. economy.

Taken together, the two moves signaled that the central bank stands ready to take serious action to prevent disruptions that began in the market for household mortgages from spreading through the economy. Stock markets worldwide rallied on the surprise announcements.

Rather than waiting until the economy dips into a recession the Fed took action to hopefully prevent that. What also needs to happen is a drop in the prime rate. One can only hope the Fed sees the wisdom of doing that at their next meeting. A cut in the prime rate would directly help those people who have adjustable mortgages which are due to adjust this fall and next year.

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