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Fed Lowers Short-Term Interest .25%
By JD Bluefield | April 30, 2008
In an 8 to 2 vote, the Federal Reserve will lower the overnight interest rate 0.25% to 2%. Many believe that the Fed will hold rates after this cut, possibly till the end of the year. Although this drop was less than the drastic 0.75% cut in march, you can see that it brings us very close to the 1.00% rate of 2004. The two remaining Federal Reserve members not voting inline with the majority voted to keep the rates constant for the time being.
According to Marketwatch.com, this is the lowest interest rate since 2004 and down from 4.25% at the beginning of 2008. See quick excerpt of the article below:
The labor market has been weakening along with consumer spending as the housing market continues to sink to depression-era lows. In addition, gasoline prices have sky-rocketed.
But the weak dollar is boosting exports and businesses appear to have inventory levels under control.
The Fed statement shows that the central bank is still more worried about growth than it is concerned about inflation.
This is the seventh rate cut since September, The central bank has reduced overnight lending rates by 3.25 percentage points over that time span.
Many economists believe the Fed will now pause from its aggressive interest rate cutting to assess whether the government economic stimulus checks can help turn the economy around.
What does all this mean for you? For all you savers, you should expect your ING, Emigrant, and local savings interest rates to drop. This will most likely feed further inflation, weaken the dollar and push up gold and other commodities.
What does all this mean for gasoline? Many had hoped that the Fed would increase rates to help boost the dollar and quell oil’s rise. That now does not seem likely for the time being. See the graphic to the right and you can plainly see the dramatic change in oil prices, and it’s relationship to the drop in the dollar. According to CNNMoney:
Since this time last year, the dollar has plummeted over 10% against global currencies, and oil has climbed about 80%. As the dollar continues to depreciate in value, investors have bought oil futures as a hedge against inflation.
After the announcement, gold shot up over $15 to $876, and silver up $0.25 to $16.77, at the time of this post.
Oil is down from its $120 peak at $113/barrel.
Topics: Investing, Personal Finance, Savings |
2 Responses to “Fed Lowers Short-Term Interest .25%”
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April 30th, 2008 at 9:48 am
The Feds want to avoid the words recession and depression. There was a rise in GDP of 0.6%, so the word depression can be avoided. They want increased stimulus so they can avoid recession. We are swimming in a sea of debt and they want to pour credit down our throat.
April 30th, 2008 at 3:10 pm
Yes, “Recession”, “Depression”, and “Inflation” are the dirty words of politics right now. Flour and rice up 15% in less than a year,… what inflation? They’re the elephants in the room no one wants to talk about.