Blogs & Comment

Fed cut to 1%

Why the Federal Reserves cut to 1% rate will fall short, according to a Financial Times of London editorial:
The power of traditional monetary policy may nevertheless be limited in the present situation . jammed credit markets mean that any cuts will take more time than usual to filter through to the economy with banks reluctant to supply new credit in the first place, overall benefits are capped to boost the real economy directly, the central bank needs to be supported by fiscal policy.
Danielle Park in her Juggling Dynamite blog,says cut to 1% wont have the same stimulus as the 1% cut in 2003:
the world economies are in a lot worse shape now compared with 2003. Back then we just had a stock market bubble and the after shocks of 9/11 to deal with I doubt that this 1% will have the same simulative effect as the last 1% did in 2003 . the cut to 1% in 2003 did not work right away even then. They left rates at 1% for one full year before consumption picked up meaningfully in 2004 . secondly, consumers also had a lot less debt in 2003 than they do today.
More on the liquidity trap by Robert Brusca, chief economist at FAO Economics:
“Banks are like roach motels. The rate cuts go in but they don’t come out,”
So we could see more of this.