Interesting Info: Fed Rate Cut

Concerns over the stability of the financial system were aggravated by news that insurance giant AIG was struggling to raise capital to stay afloat.

Consumers should soon start feeling the impact of Tuesday’s Fed rate cut in the form of lower borrowing costs and stingier savings rates.

New York - For the ninth time in just over a year, the Federal Reserve on Wednesday is expected to cut interest rates, quite possibly its last reduction in this downturn.

Even if it doesn”t cut rates, the Fed has a bit of breathing room to signal that further cuts may be coming”a reversal after warning for months that higher rates may be needed to keep inflation in check.

Economists anticipate that other major central banks will also lower rates in a coordinated rate cut much like the half-a-percentage point drop in early October.

Interest rate futures rallied sharply Monday - indicating that investors believe a rate cut is more likely - after the dramatic weekend that saw Lehman Bros.

The rate cut is good news for borrowers with homeequity lines of credit, and savings could show up as soon as the next monthly statement.

Corrections & Amplifications: Corrections & Amplifications: THE FEDERAL RESERVE’S half-percentage-point drop in short-term interest rates should result in a savings of about $30 a year for the typical household, which carries a median credit-card debt of $7,00 A previous version of this article incorrectly said the rate cut would result in a savings of about $30 a month.

TOKYO, Oct 6 - The Federal Reserve could cut interest rates by a half-point this week because the central bank may want to do so at the same time as announcing changes to reserve management after winning the power to pay interest on excess reserves, Wrightson ICAP said in a research note.

After the Feds cut the interest rate on Tuesday, rates on 30-year fixed mortgages dropped as low as 125%.

Markets anticipate another rate cut, possibly a half-point cut, at that time.

“I think this 50 basis point cut was more symbolic than substantive,” said Ed Hyland, managing director and global investment specialist in J.P. As recently as late last week, Fed Chairman Ben Bernanke and his colleagues were expected to leave short-term benchmark interest rates unchanged where they have been since April 3

The Fed slashed its target for short-term rates a half percentage point to 5%, the lowest in more than four years.

The European Central Bank and central banks in Canada, England, Sweden and Switzerland also cut interest rates a half percentage point.

Fed policymakers voted unanimously during an emergency meeting Tuesday night to approve the cut.

In cutting the federal funds rate, the Fed said the outlook for economic activity had weakened: Consumer spending has slowed and labor markets have softened.

Traders work the floor of the New York Stock Exchange after Federal Reserve policymakers announced a cut in the federal funds rate.

Borrowers looking for a new fixedrate homeequity loan could also see lower rates.

Perversely, however, some economists say it could lead to higher rates on fixedrate mortgages down the road if bond markets expect the Fed move will spur higher economic growth or inflation.

The Fed’s aggressive action was a boon to financials, technology stocks, utilities and homebuilders, with homebuilders perhaps standing to gain the most from lower interest rates.

“I had no idea that back-stopping speculators and hedge funds was part of their mandate,” wrote Barry Ritholtz, CEO of Fusion IQ. 1

Fed Chairman Ben Bernanke said in a statement on Friday that the central bank would use “all powers at our disposal” to ease the credit market strains and foster a strong economy.

“There is a lot of mindfulness at the Fed there can be too much of a good thing,” says Richard DeKaser, chief economist at National City Corp., a Cleveland-based bank.

Lower mortgage rates may help the housing market, but the credit crunch has spread far beyond housing, according to Nouriel Roubini, an economics professor at New York University.

In the short run, the Fed’s action is expected to have only limited impact on borrowing costs, given that credit markets are constricted for even the worthiest of borrowers, no matter what the price.

Stocks rose sharply after the Fed’s announcement, with the Dow Jones Industrial Average gaining 3397 points, or 5, to 13733 Libor is frequently used to set rates for subprime adjustables, loans made to borrowers with scuffed credit.

Average rates on fiveyear newcar loans are 72, versus 81 on July 4, according to Bankrate.com.

The Federal Reserve said it lowered shortterm interest rates by half a percentage point, to 75, to combat the effects of a weaker housing market and tighter credit on the broader economy.

About 85 of all credit cards carry variable rates.

Morning Edition, March 19, 2008 The Federal Reserve on Tuesday slashed a key interest rate by three-quarters of a point, making it cheaper for banks to borrow.

The Dow Jones industrial average surged 3397 points, or 51%, higher to 13,7339, its first 300-plus point gain since October, 200

.