Fed cuts interest rates to 3.5%

Re:Fed cuts interest rates to 3.5% by comatose_kid on Tuesday January 22, 2008 @02:05PM (#102335)

Right - I understand this part. But I think this is more than balanced by the positive effects of rate cuts on our economy. Rate cuts make it smarter to borrow than to save (for businesses and individuals), and the spending of this money means more growth. Economic growth is what will make the US dollar a more attractive investment.

I guess that given the huge drops in housing values, combined with the layoffs that will (and have) occurred in the banking and housing industries, I am more worried about deflation than inflation. $100 oil and a lower dollar don't matter as much as banks going under and people walking away from their houses.

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Re:Fed cuts interest rates to 3.5% by david927 on Tuesday January 22, 2008 @03:05PM (#102389)

I think you mean the 'potential' positive effects of a rate drop, because if you remember, Japan dropped their prime rate to 0% for years and it did nothing. It only makes it easier to borrow and therefore easier to finance growth and restructuring if you want it. But if the climate is negative and no one is buying, then there's no reason to grow, etc.

Deflation is also bad. Bernanke thinks that the effects of the Great Depression could have been mitigated if monetary inflation would have offset the deflation that was occurring. And I think that what he's doing here. Unfortunately, he's about to find out why that doesn't work.

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Re:Fed cuts interest rates to 3.5% by comatose_kid on Tuesday January 22, 2008 @04:19PM (#102443)

Good point - thanks.

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