Bernanke Battles `Big-Time’ Economic Erosion With New Rate Cuts

Rich Miller
Bloomberg
Monday, Oct 27, 2008

Less than three weeks after the Federal Reserve’s emergency interest-rate reduction was, in the words of its vice chairman, “overwhelmed” by the collapse of financial markets, Ben S. Bernanke is about to try again.

The outlook has worsened since the Fed last acted on Oct. 8, and analysts now say the economy may shrink more than 2 percent in the final quarter of 2008, its steepest decline in at least 18 years. “We’re heading south big-time,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington.

As a result, Fed Chairman Bernanke and his colleagues may eventually have to drive the benchmark overnight rate close to zero to resuscitate the economy. The next installment comes Oct. 29 when, says Gramley, “the Fed is going to cut rates a half percentage point.”

(Article continues below)

That would reduce the central bank’s target for the federal funds rate, which commercial banks charge each other for overnight loans, to 1 percent. The official rate hasn’t been that low since 2004, and has never been lower since the Fed began trying to control it in the late 1980s. More cuts may follow if the economy doesn’t recover.

Bernanke, 54, and his colleagues are carrying out what Vincent Reinhart, former Fed director of monetary affairs, calls a “great monetary experiment” in attacking the financial crisis — and the credit crunch it spawned — on three fronts: lower rates, increased liquidity and purchases of assets that banks and investors don’t want.

A Worsening Economy

So far, they’ve had limited success in turning things around. In fact, the economy looks to be worsening and may shrink at an annual rate of 2.2 percent this quarter, based on the median of forecasts from 11 top economists in the last two weeks. That would come after a likely 0.5 percent contraction in the third quarter and would be the biggest decline since the fourth quarter of 1990, when the economy shrank by 3 percent.

Full article here

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7 Responses to “Bernanke Battles `Big-Time’ Economic Erosion With New Rate Cuts”

Concerned Citizen Says:
October 27th, 2008 at 5:21 am
This does not appear to be a wise move. When real inflation is factored in, the U.S. economy has been shrinking for decades. Housing prices have fallen because people can’t afford to buy houses when their incomes, in terms of actual purchasing power, are falling or they are losing their jobs. “Save your peope, LORD, and bless those who are yours. Be their shepherd, and take care of them forever.” (from the Bible, Psalms 28:9)
martae Says:
October 27th, 2008 at 7:00 am
I don’t see anything pulling the US out of this depression until the dollar, and wages fall far enough to make industrial exports from the US viable again. Jobs in the renewable energy sector, and the wealth kept here because of lower energy imports will help, but will not be enough. The support of moribund financial institutions is a mistake, and will hurt, not help.
rich Says:
October 27th, 2008 at 8:23 am
1/2 percentage point cut, are they that nieve ???????? nothing is going to stop a market landslide !!!!!!!!!

http://www.pyrabang.com/view.p.....st_id=4577

goldieshouse.piczo.com
Dr. Neckbone Says:
October 27th, 2008 at 9:00 am
I want to see it! Give the rate to me, not the bank, I need the 1%, not the bank!!!!!!!!!!!!!
Brad Says:
October 27th, 2008 at 9:10 am
I’m going to wait until the banks pay me money to take out a loan and if they do that, then I know we’re in trouble.
OldSchool Says:
October 27th, 2008 at 9:40 am
Bernanke and Paulson are both Bush whores, and I am appauled at what they are doing in Wall St. It’s ironic that the Asian markets can crash so badly, yet our markets are showing minimal losses. What I’m seeing here is another selfish INSIDER TRADING practice along with currency manipulation. If you severely deflate the value of a dollar and buy stocks low, then overinflate the value of the dollar to sell, it is a blatant manipulation of the stock market values mixed with insider info and government fraud that creates this illusion of a rebounding market. And they’re doing the same thing in the UK since the dollar and the euro are sex buddies, just like Bush & Brown. Beware citizens, the grand screwing is just over the horizon.
=== AMMO IS THE NEXT WORLD CURRENCY ===
Isabel Says:
October 27th, 2008 at 8:53 pm
This is the same reason why EVERYONE OF YOU needs to be and the END THE FED RALLY on NoVEMbEr 22nd
Be there of SHUT UP!!!