Does it make economic sense for the Feds to lower interest rate?

[question everything]

I am just asking. The DOW jumped yesterday in anticipation of a raise which means, I suppose, that if this anticipation will be met it would be huh-hum, nothing new and the market will drop.

But besides satisfying the stock market, does it really help?

Anyone?

[jobycom]

1. Who knows at this point?

I think they are just experimenting to see if something works. We are on rare ground, without enough precedent to be sure of anything at this point.

Ask James K Galbraith. He's been right a disproportionate amount of the time. But I haven't seen his opinion since the bailout plan.

[Warpy]

2. No, they should be raising it

and making both the dollar and the US debt look more attractive. The last rate decrease did absolutely nothing for the stock market and expecting another one to do something positive for it is like the old joking definition of insanity.

They should have raised rates, period.

[AnneD]

7. This is why I think the FEDs should be abolished....

First-it is a private concern and aside from approving the Chair-congress has little say and no control. We don't own it and it doesn't act in our nations best interest.

Low interest rates at this time cheapen the dollar, making commodities higher. Look how much the dollar has strengthened, look at commodities drop. It was the low rates and the repackaging of debt hat has caused this current mess.

They have objected to regulation when they want and look what happened.

They should be abolished.

[shireen]

3. sure, keep lowering it to double-digit negative numbers

so credit card holders and others with loans can start making money on their debt.

Sorry. Stupid response. But there has been one outrage after another for the past few years. Who's to say such a nonsensical scenario could not happen?

Gotta go ... Mad Hatter is having a tea party.

[kenny blankenship]

4. The attempt to make lending more profitable to banks is about the only thing they can do

to induce lending and growth in the economy. The Fed has only few major tools to work with and the prime rate is number one. If demand destruction has already advanced sufficiently though, lowering the interest rate will not spur much lending toward business expansion. That's the classic pushing on a string problem for central banks. Japan has already been through a decade of that. They will need to stimulate the demand side for any supply loosening to work. But the Fed doesn't hand out billions in small parcels to private citizens for them to spend. Next step after that fails is to take full control of banks by govt., and direct loans to businesses by committee.

[question everything]

5. I would think it would be more proiftable for banks to have higher rates...

unless they do not pass the savings to borrowers, so they can keep the difference and pay pennies on any savings and CDs that cautious citizens choose to have..

As interest rates was going down recently, I was thinking that many of these mortgages now on default could be affordable again, if banks did transfer the savings.

Yes, I know, being logical does not work in our economy..

[CountAllVotes]

6. being banks are hoarding the money they got

and are not lending it to consumers, the answer is no. The consumer is the one that might benefit if the money was being lended.

However, the banks want to keep this money and they want to optimize their profits. If the rate is lowered, they'll get less on the money unless it is invested in Wall Street. :think:

Maybe that is the plan?

The rates are too low when compared to the interest rates in other countries. The USA is headed towards becoming Japan c. 1990 or so.

So for all practical purposes, my answer is no, don't do it Bernanke. This man is indeed a fool. :puke:

[A HERETIC I AM]

8. It's important to understand what the Federal Reserve is trying to do when it alters the rate...

either up or down.

The Fed Funds rate is about money supply. How much is in the system and how expensive it is. Right now there is a need for banks to have access to cash and lowering the rate allows easier access to it. The interest charged is on loans that are typically overnight, not long term. The rate is sort of like a pressure regulator valve. When the economy gets overheated, they raise rates thus lowering the pressure. When the economy is lagging or slowing, they lower them in order to try to increase and keep the appropriate pressure. Rate goes up, the pressure valve opens. Rates go down, the valve closes. It is an imperfect yet effective tool.


http://en.wikipedia.org/wiki/Federal_funds_rate