Fed Move Eases Panic

Fed Move Eases Panic

 

The Federal Reserve's recent move to encourage bank lending has helped ease some of the panic in financial markets, but the underlying problems that led to the seizing up of credit are still there - and obviously won't disappear overnight.

 

The credit crisis escalated last week, forcing the Fed to cut its little used discount rate - the rate it charges member banks for temporary loans - a rare move for the central bank.

 

The Fed's decision to cut the discount rate was designed to get banks lending again and reassure the market - and so far that appears to be working.  But for borrowers, the real move to watch is the one when the Fed takes on its more closely watched fed funds rate, a key short-term rate that influences rates on a variety of consumer loans.

 

Some analysts said it looks more likely now the Fed will cut this rate to keep the credit crunch from becoming a drag on economic growth when it next meets on Sept. 18, or even earlier if there's further turmoil in the credit markets.  The fed funds rate now stands at 5.25 percent.

 

We'd love to hear your comment.  Did the move by the Federal Reserve do ANYTHING to boost your confidence in a sagging economy?  Leave your comment below.