Wikinvest Wire

U.S. rate cuts not so "stealthy" anymore

Tuesday, October 07, 2008

Let's see, they cut rates by a full point in Australia this morning and both the ECB and the BOE are believed to have twitchy trigger fingers at the moment. In the U.S., it looks like rates have already been slashed, they just haven't announced it yet.
IMAGELast Thursday, the "effective" Fed funds rate dipped more than a full percentage point below its target to 0.67 percent and with reports like this one from Bloomberg, lower short-term rates in the U.S. aren't such a big secret anymore.

The Federal Reserve may have trimmed borrowing costs yesterday without actually saying so.

The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.
Still, a ``soft federal funds rate does not provide a perfect substitute for a cut in the target,'' former Fed Governor Laurence Meyer and former Fed researcher Brian Sack, now with Macroeconomic Advisers LLC in Washington, said in a research note to clients.
In other Federal Reserve news, Dallas Fed President Richard Fisher commented, "I'm not as worried as I was before that we might, when the financial system was repaired, have ... inflationary pressure".

If Fisher isn't worried about inflation (he's voted against the majority at every FOMC meeting this year up until the last one), an "official" rate cut may soon be on the way.

Will it make any difference?

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