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Monday, October 27, 2008

'Big-Time' Economic Erosion, More Rate Cuts

Looks like rates will be dropping below 1% sooner rather than later…

Bernanke Battles `Big-Time' Economic Erosion With New Rate Cuts: “Less than three weeks after the Federal Reserve's emergency interest-rate reduction was, in the words of its vice chairman, “overwhelmed” by the collapse of financial markets, Ben S. Bernanke is about to try again.

The outlook has worsened since the Fed last acted on Oct. 8, and analysts now say the economy may shrink more than 2 percent in the final quarter of 2008, its steepest decline in at least 18 years. “We're heading south big-time,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington.

As a result, Fed Chairman Bernanke and his colleagues may eventually have to drive the benchmark overnight rate close to zero to resuscitate the economy. The next installment comes Oct. 29 when, says Gramley, “the Fed is going to cut rates a half percentage point.”

That would reduce the central bank's target for the federal funds rate, which commercial banks charge each other for overnight loans, to 1 percent. The official rate hasn't been that low since 2004, and has never been lower since the Fed began trying to control it in the late 1980s. More cuts may follow if the economy doesn't recover.

Bernanke, 54, and his colleagues are carrying out what Vincent Reinhart, former Fed director of monetary affairs, calls a “great monetary experiment” in attacking the financial crisis -- and the credit crunch it spawned -- on three fronts: lower rates, increased liquidity and purchases of assets that banks and investors don't want.”


Emini Addict said...

These guys are out of bullets. Nothing they do is going to avert the sell off.

Anonymous said...

When they run out of bullets is when they start the presses. Let's hope they don't run out of bullets.

Anonymous said...

The addict is having some " dry heaves" this morning....hehehe

Treatment sucks but it looks to be quite nessesary. We might all need a group hug after this week. :)


Anonymous said...

And it wont work. The problem is consumers are broke, and any fix they try just makes them more broke in future.

should have let banksters and agency bondholders fail, instead they did additional damage to consumer, that is 70% of economy, and he knows it.

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