Wednesday, January 30, 2008

Fed has cut the rate..............and it means?

The Fed cut interest rates today, 30th January, from 3.50% to 3.00%. The interest rate is the rate at which banks lends to other banks for a period of time, usually overnight. The Fed did that to prevent the thought of recession. The Fed has to respond to the falling stock market and failing economy. The effects of the reduced interest can be categorized as good news, mixed news and bad news.

Good news
This will help people to borrow loans at a cheaper rate. This enables people to take loans for businesses or cars, that are within their reach i.e. loans they can afford the monthly payments.
People with variable rate mortgages loans can refinance their homes. Also if you have a variable rate credit card, you can call your credit card to lower your rate if your rate can be lowered.

Mixed news
Treasury bonds, already taken students loans and fixed mortgages will not feel the effect right away, but they will feel it in the long run.

Bad news
Savers and high yield interest rate account owners will have lower returns on their money. People with existing car loans will not benefit from this reduced interest rate.

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forexdiscover said...

It's not so good news for US dollar against other major currencies. Cheers^^

Margaret said...

All this does is encourage people and businesses to incur more debt. It actually repels investors who are cash-rich as they go overseas where the returns on investment is higher.

We need to do something to encourage not discourage investment in US manufacturing and business in order to fight this recession.

It seems the Fed, and the Federal Government are all in agreement to do more things that are counterproductive to building a stable economy. The rebates they're talking about are on the same order -- too little money to an individual to truly help his/her financial woes and borrowing from Peter to pay for it.

vladinati said...

Good read, and great blog. Keep up the good work.