Tuesday, December 16, 2008
The Fed cuts interest rates to zero
The Fed cut short-term interest rates to essentially zero this afternoon, and the stock market loved it. Either that, or equity investors were simply due for an up day. It is a little hard to tell.
My question (shamelessly swiped from the Emirates Economist): Does this mean that the Fed is now operating under Islamic law?
3 Comments:
By 
, at
Wed Dec 17, 01:54:00 AM:
Japan tried this ploy. It didn't save them from more than a decade of recession. So why did the Fed bother?
By 
TigerHawk, at
Wed Dec 17, 07:18:00 AM:
Well, it is the textbook response to a massive global economic downturn. In Japan's case, I believe that most economists would say that the long delay in recovery was because the Japanese were so unwilling to recognize and write off losses. Their "zombie bank" problem persisted for a very long time. The point of the TARP -- one of them -- was to get rid of the bad loans as quickly as possible. The point of a stimulus plan -- one of them -- is to prevent more loans from going bad in the first place.
By John B. Chilton, at
Wed Dec 17, 09:38:00 AM:
In addition, as the Fed said in its press release yesterday, "As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant."
