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[Almost Zero] It’s Now Or Never: Fed Needs To Use The Toolbox

It’s nice to see the Fed deal with the recession aggressively in their rate cut. Here’s a good summary from Bloomberg [1]:

The Federal Reserve cut the main U.S. interest rate to as low as zero and said it will buy debt as the next step in combating the longest recession in a quarter-century and reviving credit. The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Here’s a good summary of economist commentary from WSJ/Real Time Economics blog in their post: Economists React: ‘Who Could Ask for Anything More?’ [2]

I pondered this action last week….. [3]

We are now 0 to .25, the lowest federal funds rate ever and hopefully the beginning of noticeable stimulus to the economy. Of course, this fact is still to be determined by whether banks opt to start lending full scale soon rather than simply recapitalizing.

I am thinking we will see some thawing (on a small scale) in the first half of 2009, because lenders have to actually lend at some point (I know they are currently lending, but not enough to sustain their existence). If they don’t move forward, many will need to reinvent themselves (that is what the investment banks already did) fairly soon.

Aside: speaking of gambling, here’s the worst last name ever [4].