Tuesday, December 16, 2008

Empty Quiver?

The Fed is running out of room to goose the economy. This rate cut comes on top of a report this morning that the Consumer Price Index fell a record 1.7% last month which means that inflation is no longer the worry it was. It does mean that we are getting some deflationary pressure in the economy and that is a bad thing since it can begin to spiral and ripple across the entire economy in a very bad way. BTW, don't expect the banks to lower the interest on your credit cards because of this.

NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.

The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.

Wall Street seems to like the news since as of this writing the DOW is up 375 and change and 9,000 is almost within range. Makes me happy.

Update: Krugman adds "Seriously, we are in very deep trouble. Getting out of this will require a lot of creativity, and maybe some luck too."

No kidding?

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