The effects of a Fed cut take time

Steve Henn Jan 30, 2008

TEXT OF STORY

Scott Jagow: Whether or not the Fed cuts interest rates again today, you won’t see immediate repercussions. These things take time. For example, the rates on 30-year mortgages have fallen to 5.5 percent. But that’s the slow-moving effect of last year’s Fed cuts — it’s not from the emergency cut last week. Mortgage rates aren’t tied directly to the Fed’s interest rate. Still, this morning, we learned that home refinancing applications are at a four-year high, ’cause of those falling rates.

Now, about today’s decision. We turn to our reporter in Washington, Steve Henn.


Steve Henn: Just last week, the Fed cut interest rates three-quarters of a percent. That’s a huge drop by historical standards, and Hugh Johnson at Johnson Illington advisors says it puts Fed Chairman Ben Bernanke in a bit of a bind.

Hugh Johnson: It’s an awful lot of ammunition to spend in a little over a week.

After all, the Fed can’t go on cutting interest rates forever. With rates at 3.5 percent now, there’s not a lot left to cut.

Richard Dekasser: The Fed has done a lot already.

Richard Dekasser is chief economist at National City corporation:

Dekasser: We really have not even begun to see the effects of past rate actions.

But Wall Street wants more. Johnson says investors are acting a bit like a spoiled child.

Johnson: Investors clearly . . . I don’t want to say are demanding, but certainly expecting the Federal Reserve will reduce interest rates.

If they’re disappointed, expect the markets to throw a temper tantrum.

In Washington, I’m Steve Henn for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.