Fed Cuts Rates Quarter Point

The Last Time Interest Rates Were This Low Was December 2004

The Federal Reserve once again cut a key interest rate, trying to do whatever it can to keep the economy from grinding to a complete stop.

Today’s quarter-point cut brings the Fed Funds interest rate to 2 percent. It was the seventh such cut since September, when the central bank first started to lower rates — then at 5.25 percent — in response to a collapsing housing market and the tightening of credit.

The last time interest rates were this low was December 2004.

This cut might be the last one for a while. Many economists and investors expect that at some point soon the Fed will take a pause in its rate-cutting.

“Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further,” the Fed said in its statement. “Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.”

While Wall Street investors typically like such moves, this rate cut is likely to have little, if any, impact on most Americans. Rates on mortgages, credit cards, student loans and other types of loans in the past benefited from such a cut, but now are unlikely to change substantially because of this move. The latest cut, however, could mean higher gas prices for Americans.

Nevertheless, Joel L. Naroff, president and founder of Naroff Economic Advisors, said the Federal Reserve made the right decision.

“Cutting one more time, it doesn’t do a whole lot,” Naroff said. “But it’s a chance for the Fed to signal that it intends to stop the rate reductions. The simple fact is short-term rates are low already. They don’t need to go a whole lot lower. The problem is not the level of rates, the problem is the availability of money and that’s the credit crunch, liquidity problem.”

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