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Fed Cuts Key Interest Rate by Half-Point
As most everyone was expecting, the Fed cut interest rates by a half point taking it to its lowest level (one percent) in the
last four years. Before that, the rate has not been lower since the fifties. In addition to the interest
rate cut, the government began spreading the money around, from the highly anticipated rescue package.
Efforts were in overdrive to try and do as much as they can to try and steer clear of a recession and ultimate
economic fallout. All of this, just days before our new president will be elected. Today, the U.S. will also
get a glimpse of how the economy has been doing in the last couple of months. It is expected to show that, in the
third quarter, the gross domestic product fell .5 percent. In addition, the gross national product is thought
to continue its fall through the end of the year and is expected to continue falling through the first quarter
of 2009. Generally, we only need two consecutive falling quarters to call it a recession.
While the stock market rose to its second largest point gain on Tuesday, it was not to endure. On Wednesday, the
Dow finished seventy-four points down and continued to show signs that the economy is still unsure as to whether
or not the government is doing enough to prevent us from a full blown recession.
Although the rate cut is not to be undervalued, some are suggesting that cutting rates to zero cannot be
ruled out. However, if that happens there will be added risk because, from there, the Fed will have exhausted
its ammunition if the economy continues to worsen. More than likely, they will hold at one percent until the
final meeting of 2008 in mid-December, or they will wait until 2009 should things get worse.
As of now, the government sent checks out totalling one hundred twenty-five billion dollars to nearly ten banks including
JPMorgan Chase, Morgan Stanley, Goldman Sachs and Bank of America. Banks are now expected to begin loosening
standards and once again resume regular lending, which should help stimulate the housing market.
On news of the rate cut, Asian markets did quite well jumping twelve percent.
Marin Real Estate Blog
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