Fed Offers Rate Cut — But Is It The Last?
- Nov 01, 2007
The Fed late today announced another quarter-point rate cut, bringing short term rates to 4.5 percent.
It was a move widely expected by the financial community — but not necessarily among the Fed, who did not vote unanimously for the cut. (For the record, Bernanke supported it.)
Why? Well, for one, growth isn’t slowing — and neither is consumer spending, according to recent Commerce Department data, which, despite the dour housing situation, makes home value, price and sales declines less of a concern for the Fed.
And yet — there is concern the economy will slow, hence the rate cut.
As mortgage-backed securities continue to threaten U.S. banks, and analysts are saying there could be 500,000 to 2 million foreclosures on subprime loans by the end of 2008, according to the New York Times.
That’s something the Fed is well aware of — as it said in its statement, "the pace of economic expansion will likely slow in the near term,
partly reflecting the intensification of the housing correction."
The Fed has said many times it isn’t interested in bailing out flippers and those who overinvested in the housing market — but what it is interested in doing is proactive, preventative policy making. Today’s cut indicated that. But will the Fed cut the rate again soon? We’ll have to wait and see …