Tuesday, December 16, 2008
The Federal Reserve slashed their target short-term lending rate to a range of 0.0 percent to 0.25 percent and signaled the beginning of an era of "quantitative easing" where the central bank will buy a wide variety of assets to support the struggling U.S. economy.
Just 15 months into the current rate cutting cycle, Ben Bernanke has outdone his predecessor by a wide margin, now embarking upon what former Fed chairman Alan Greenspan only contemplated briefly back in 2002 - ZIRP, or "Zero Interest Rate Policy".
Most analysts predicted a rate cut of only 50 basis points, from 1.0 percent to 0.5 percent, and the announcement of a range instead of a specific target was unexpected as well.
An even more stunning change came in the policy statement which grew by about half in length to include descriptions of the Fed's present and future open market operations now that monetary policy has reached its limit.
The purchase of Fannie and Freddie debt, mortgage backed securities, long-term Treasuries, and the extension of credit to households and small businesses are all just the beginning of what is likely in store for 2009.