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The effects of a Fed cut take time

Steve Henn Jan 30, 2008


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.

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