Another Fed Rate Cut - Could be the Last
The Federal Reserve implied that rate cuts could be ending…
As widely expected on Wall Street, the Federal Reserve cut its closely-watched target for short-term interest rates by a modest quarter percent to 2%. The Fed also cut the discount rate it charges banks by a quarter point - to 2.25%. The Fed hinted that the move could be the last in a series of rate decreases meant to buffer the economy from surging energy prices, the housing downturn and other inflationary threats. It also shifted away from a promise to “act in a timely manner” to a softer commitment to “act as needed.”
The recent changes indicate a willingness by policy-makers to wait and see if the economy picks up speed. The Fed is “basically telling you that unless their outlook for the real economy deteriorates further, they will stay at 2 percent,” Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co (PIMCO), told Reuters. Many expect the Fed to pause further rate cuts until the full impact of these - and other actions - can be evaluated.
The decision follows a half point cut six weeks ago to help offset the nation-wide erosion in the real estate market and new home construction that is threatening the broader economy along with rising oil and commodity prices. It was the seventh cut in a campaign that has brought the key lending rate down by 3.25 percentage points since mid-September.
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