This is the press release from the Federal Reserve:
Release Date: September 18, 2007
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.
Wall Street immediately rallied on this news. I wonder how long it will take them to notice that the Fed cut because of problems in the economy- and problems are not a good thing.
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Rate cuts are not going to turn me from a fence-sitter into a buyer in the housing market.
Price cuts will.
Japan was at near ZERO percent interest rates, but went through its 15-year housing bust anyways.
So much for the fantasy that lowering interest rates will help us out of this mess. As many experts have noted, lowering interest rates will only multiply and prolong the pain – pain that is well-deserved for attempting to “cheat” the economy and create wealth where it never existed.
Why do I have this picture of Ben skiing ahead of an avalanche?
DianaK,
I agree.
A 375k house that was 220k 3 years ago is the problem.
Many fence sitters cannot or will not become home owners because of rate cuts.
The rate is not that bad at 6.5% or so if the house prices were more realistic.
I made some serious money on my last 2 house sales in the valley even though I’m not a flipper.
I took the money and ran and now I sit and wait like you.
America is great again. Interest rates are down, stocks are up, real estate is a bargain, temperatures are no longer 110F. Ain’t life wonderful here in AZ? T.
Yes! We’re saved! The fed is bailing out speculators!
Let’s see. For a 300k 30 years fixed rate mortgage, a 0.5% drop in interest rates drops your monthly payment by around a whopping $100!
That’s just awesome.
The big drop just proves what a disaster it is out there. Instead of celebrating, people should realize that we’re already in a recession, and with rising inflation. Simply put, disaster.
So they’ve decided on hyperinflation and the destruction of the dollar. This is going to be just freaking great… {Sigh}
This 50 point drop should help people with ARM when they reset to higher interest rate. Just delaying things.
cfishy-
Unless of course your mortgage is tied to the LIBOR, then it does nothing.
When the fed finally goes back to worrying about stopping inflation, then interest rates will jump back up – and then some, to make up for the lost time/influence.
Oh, but who cares? At least the stock brokers are happy, and we won’t have to hear them whining for oh, at least a day or two…well, until the next “unexpected” losses are reported? THEN, all we’ll hear is a bunch of whining again about how the fed “*MUST* drop rates at least another 1/4 percent the next time they meet!”
JimAtLaw-
Mr. Twist is an importer- as you can imagine, he shares your sentiment. [as do I]
Unless of course your mortgage is tied to the LIBOR, then it does nothing.
Yes it does something–it makes it worse. Lowering interest rates increases the Libor-Treasury spread. That spread is systemic risk. An increase in systemic risk feeds back into the Libor rate itself, and increases it.
Interests rates will increase as the dollar tanks. Will this “chase” Libor and decrease systemic risk? No. Interests rates will increase because of a declining dollar; the decrease in the dollar is a decrease in confidence. That will also send up Libor.
An attempt has been made to decouple systemic risk from confidence. Supposedly artificial barriers–such as those between “monetary” and “social” policy–sanction this.
But it is a distinction made only in fascist economics. What do fascist economies do? They privatize profit and socialize loss.
This is why the lowering by the Fed both reflects and aggravates the decline in economic activity.
This is what I have been saying since June 2006–there is declining economic activity in the United States. Ersatz social policy, or faux liquidity, is the dance which is being done by the political system at the behest of suburbia, which runs the country.
The dance will continue as long as there is suburbia, because they do the voting. But as Henry C K Liu recently pointed out, effective underemployment is now about 25% of the population. Since suburbia started closing its ranks to new entrants a long time ago, this number is about to increase as suburbia starts destroying itself.
This is what people talk about when they say a crisis. The crisis will be when suburbia loses its political power, but the disenfranchised haven’t yet gotten it together to know what they want. The measure of this lack of clarity is the response to the current mini-crisis. Look at the proposals to reform things: they reflect no new social policies, only attempts to reinforce the old ones. In a declining political system? Thus, every attempt at reform only has the same effect as Fed lower: it increases systemic risk, and decreases confidence.
I offically request a name change from Helicopter Ben to Bailout Ben.
jryskmpr -
I believe your analysis completely contradicts my assertion in a reply to a Telegraph blog post by Carlos Cortiglia that reducing LIBOR was exactly what the Fed easing was trying to achieve.
By the way, do you know if all that $30+ billion of commercial paper got rolled over Monday in The City? That story seems to have been eclipsed by the N Rock bank run and the Fed meeting.
Hm, lowering interest rates got us into this mess, I’m going to guess that Ben is smarter than we give him credit for. I’m thinking that something BIG is on the horizon, and the Fed sees it coming.
Just keep an eye on sales tax and income tax revenues in each state. I never believe Walmart’s sales figures. I think Arizona is already in the slide to the big one. This state operates nearly exclusively on one thing….real estate. When the days get dark in Arizona, they get really dark. Been there twice before.
Sandman-
I think it was more of a psychological boost to placate the masses then any sort of rational policy. 50 BP does say they expect trouble though- I don’t know why that didn’t scare traders- it sure worries me.
So Bernanke sees a recession coming? Well, duh, Ben! Our last 2 recessions were artificially stopped with asset bubbles. Of course, there’s a recession coming. Because we deserve it.
Doesn’t anyone else believe in Keynesian economics anymore? That recessions and booms go hand in hand. That when trying to prevent mild recessions we inevitably bring about larger recessions down the road?
& what happened to the dual role of the FED? What happened to the idea that they are to stop bubbles/irrational exuberance from gathering in the first place? How can they call themselves responsible when they’re only playing to one side of the fence?
sandman-
>>Im going to guess that Ben is smarter than >>we give him credit for
Well, that would be great, if it wasn’t Ben (and Greenspan) that got us into this mess in the first place by helping the housing bubble along.
(“Fool me once, shame on you. Fool me twice…”)