Fed Poised to Cut Interest Rate

[Nov 21, 2007.]

The Federal Reserve Board appears to be readying to slash a key interest rate. The much-anticipated move could offer relief to the housing market and credit industry, which have both been pummeled over the last few months.

The Fed last cut interest rates in September. However, the effort failed to have an appreciable effect on the housing industry, where prices continue to slide.

Meanwhile, the Fed is pumping a significant amount of money into the financial system. The effort is perceived as a way to assist companies reeling from the current credit crunch.

If the Fed does move to cut interest rates, consumers and homeowners could see a drop in the amount of interest they pay on credit cards and on home equity loans.

A number of economists believe that the nation can avoid recession; still, the chances of one taking place have increased significantly since the beginning of this year.

If the Fed, however, decides to leave interest rates unchanged, it simply means that Fed officials are figuring that the economy is strong enough to combat current economic troubles. Still, a number of investors could react quite negatively, sending stocks into a free fall.

Another fear is inflation. Oil prices have skyrocketed recently, a situation which could have a ripple effect in the rest of the economy.

So far, the troubles in the housing industry, though alarming, have yet to have a spillover effect on other economic sectors. However, analysts do not expect the housing market to recover until at least the middle of next year. That could mean more trouble ahead for homeowners hoping to put their houses on the market, as well as for potential homebuyers, who are having increasing difficulty obtaining home loans. The recent plunge in house prices certainly does not bode well for the industry, which is suffering its worst slump in some 16 years.

Julie Ann Amos
November 21st 2007

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