Industry Has Mixed Reaction to Fed Rate Cut
- Jan 23, 2008
Washington, D.C.–The largest interest rate cut in 18 years, offered Tuesday by the Federal Reserve, is likely to lower certain borrowing costs but may not reinvigorate the economy, USA Today reported Wednesday.The cut, designed to persuade financial institutions to continue to lend money to businesses and consumers, took the benchmark interest rate down by three-quarters of a percentage point to 3.5 percent. The reaction to the cut varied. Lenders reduced the prime rate for their best customers by three-quarters of a percentage point to 6.5 percent after the Fed announcement; however, global financial markets fell as foreign investors grew concerned that U.S. credit issues would halt the economy’s growth, according to USA Today.Since the prime rate also affects the rate on many home equity loans and credit cards, consumers might see lower costs.However, even with a cut, the Fed can’t make banks lend more; and banks may still be hesitant to issue loans to consumers with bad credit, Mark Zandi, chief economist at Moody’s Economy.com, told USA Today.Other economists–such as Vincent Reinhart, former director of the Fed’s division of Monetary Affairs–said that even with the rate cut, odds of the U.S. falling into a recession in the next few months are as high as 2 in 3.Despite the uneven reaction, several analysts said Wednesday that another rate cut could come next week when the Fed is scheduled to meet.