Fed Expected To Cut Rates

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Everyone and their uncle expects the Fed to cut interest rates today by at least a quarter point, to stave off a deepening recession. As always, the cut is supposed to stimulate consumer spending, which is the only growth catalyst in the economy.

The Fed cut the federal funds rate, the interest that banks charge each other, for the first time in four years at its September meeting, reducing it to 4.75 percent. Responding to that move, commercial banks cut their prime lending rate, the benchmark for millions of consumer and business loans, by a half-point as well to 7.75 percent.

The economy’s troubles include the worst slump in housing in more than two decades and a credit crunch that roiled financial markets this summer when investors suddenly became concerned about mounting losses from defaults on subprime mortgages.

With lenders tightening mortgage standards, marking it harder for prospective buyers to qualify for loans, and defaults continuing to rise, the slump in housing has deepened.

Tight credit, high energy prices, and a weak dollar are all preventing the consumer from “letting her rip again.” It’s widely considered that savvy investors have already figured this rate cut into their calculation, so what effect it has on the stock market today is unknown.

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