Federal Reserve Cuts Interest Rates
The Federal Reserve recently cut the key interest rate one-quarter percent, in hopes of revive a struggling economy. The prime rate will fall to four percent, and some home equity loans, auto loans, and variable rate credit card rates may also drop. This is the lowest level since Dwight Eisenhower was president. (http://www.yahoo.com)
Lower interest rates encourage people and businesses to borrow money and spend it on goods and services. In theory, this should keep the economy running smoothly. Although the economy is still feeble, the Fed believes that it will be able to fully recover with the latest interest cut. The economy "has yet to exhibit substantial growth. With inflationary expectations subdued, the Committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve overtime," the Fed announced. (http://www.bankrate.com)
Many economists believe the combination of the lowest interest rates since the late 50's and President Bush's latest tax cuts will finally be enough to spur stronger economic growth in the second half of the year, but not before the unemployment rate increases slightly.
Other economists disagree with the cut, arguing that the cut was unnecessary because the economy already showed signs of improvement. This is seen in the rallying stock market, but not in the unemployment rate, which is currently at a nine-year high of 6.1 percent. (http://www.bankrate.com)
Fed Chairman Alan Greenspan and other Fed officials have openly discussed their concerns about deflation, something the U.S. has not seen since the Great Depression of the 1930s. Those comments were taken as a sign that not only were the federal fund rate going to drop, but those rates would be lower for quite some time. (http://www.yahoo.com)
The Fed believes the economy is rebounding, and that...