Interest Rate Cuts At An End

[May 28, 2008.]

 

The Federal Reserve has used interest rate cuts in the past year as a way to help revive the economy. By cutting interest rates the Federal Reserve hopes to stimulate the weakening housing market by creating desirable loans and mortgage refinancing options. Most credit card companies tend to lower interest rates in response to the Federal Reserve's decision in an effort to make plastic more appealing to consumers. Ideally, cutting interest rates should convince consumers to spend more, which will bolster the economy.

The interest rates were at 5.25% percent in September of 2007 and are now around 2.25% in direct response to the failing housing market and the growing credit crunch. This leaves many to wonder, just how much lower can the Federal Reserve slash the interest rates?

Former Federal Vice Chairman, Alan Blinder believes that the latest three quarter point cut will be the last of the cuts made by the Federal Reserve. Although, Blinder does admit future smaller cuts are possible he just does not see them happening. Blinder states that "the Fed has already put a lot of easing into the pipeline" and that he does not see the roof falling in on the U.S economy. He does admit, that the Housing Market and other financial sectors are seeing considerable strain he also believes that with the aid of the stimulus packet and the liquidity injected into the economy by the Federal Reserve further dramatic cuts will simply not be necessary.

The fear of growing inflation is another reason why further interest rate cuts should not be expected. Analysts agree that in order to keep inflation in check further cuts will not occur.

Financial experts can not come to a complete consensus to whether or not the Federal Reserve will cut additional interest rates. What they do agree upon, is that if consumers are waiting to refinance mortgages or to participate in other endeavors that use interest rates as a way to determine price then now may be the time to go ahead.