The Federal Reserve (Fed) lowered the Fed Funds Rate today by 3/4 point to 2.25 percent, in an effort to restore confidence in the United States’ distressed financial markets.
The following is an official press release from the Fed regarding its decision today, and a translation (for the rest of us) of all the financial jargon by Bob Walters, Chief Economist for Quicken Loans:
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FEDERAL RESERVE press release
Release Date: March 18, 2008
For immediate release
Bob: Now
Fed: The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.
Bob: This means the Federal Reserve lowered the short term rate banks use to lend to each other to 2.25%.
Fed: Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.
Bob: The Fed looked at their reports and realized that the economy wasn’t doing very well. They realized that you and I are spending less on stuff like gas, food and Beanie Babies. They also realized that the financial markets (banks mostly) are struggling. Given all that, they think the economy could slow down over the remainder of the year.
Fed: Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully
Bob: The Fed also sees prices of stuff (like gas, food and Beanie Babies) rising. They think that those prices will stop rising in the future because they see the price of gasoline, oil and natural gas falling.
Fed: Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.
Bob: The Fed hopes that today’s drop in rates, combined with other cool stuff the Fed has been doing lately, will help the economy do better in the future. However, they say, risks to the economy remain.
Fed: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Curtis Granderson; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.
Bob: They did not all agree. Richard Fisher and Charles Plosser thought rates shouldn’t have been lowered so much.
Want more? Find out what the Fed cut mean for your credit cards, home loan and savings.
