Posted on 10/31/2008 7:29:16 AM PDT by TigerLikesRooster
Fed's Yellen Says Rates Could Reach Zero in Weak Economy
San Francisco Federal Reserve President Janet Yellen said the Fed could lower rates below 1%, and that they could reach as low as zero amid a weak economy.
Speaking at an event hosted by the University of California at Berkley and UCLA, Yellen said that loan rates would be substantially higher without the Federal Reserve's aggressive rate cuts.
"We've seen very tentative signs of an easing of stress in money markets," Yellen said, pointing to lower LIBOR-OIS and credit default swap spreads. "However, these spreads remain at levels that are well above normal and other measures of stress have risen even further. Clearly, we have a long way to go before the credit crunch shows significant healing."
Although inflation risks have diminished greatly, recent economic data is "deeply worrisome", she said.
She added that it is worth considering other types of policies to address the crisis.
Yellen said that the credit crunch is one of the factors affecting consumer spending, and added that the credit crisis is also dragging local governments "deeper into the financial mess".
Yellen commented that fed's liquidity steps are "extremely constructive" and that credit markets will thaw over time. She noted that there are "very tentative signs" that money market stress is easing.
Yellen also acknowledged that the Fed's bailout package is a key step in breaking the economy's negative momentum.
On housing, Yellen said a bottom is "not yet in sight" and that the Federal Reserve should give more direct assistance to homeowners.
In a question and answer session following her speech, Yellen said adopting policies that recreate a bubble condition is "not wise" and that there is the danger of an "over-correction" in housing.
By Steve Stecyk and edited by Stephen Huebl
Ping!
Woo Hoo!/s
Next step ... “Just gimme the damn money!”
What are you, an Obama/ACORN Troll ;-)
It could still go negative...
Welcome to Argentina !
I’ve been wondering about this for a while. You can only cut rates so much until there’s nothing to cut...
Didn’t Japan try 0% interest rates with no effect?
I’d like a fresh stack of $100 bills delivered to my front door once a month, oh yeah....that Black woman on NBC6-Orlando is going to love this idea!/s
0% is biblical, right?
Japan could tell us how well this works...
I’m holding out for a deal where they pay me to borrow.
Seriously,,when are mortgage rates going to reflect this. I look to refinance and they won’t budge below 6.5 and anything lower has 2.75 points or something ridiculous.
Seems the bankers are not giving an inch in terms of mortgages.
your balance sheet is has a big hole
But an excellent credit risk, 6 percent is good return. We bank with USAA and their mortgage is handled by GMAC so maybe GMAC is in trouble.
To me it seems they only want to get through this financial crisis until January, 2009. They will walk away leaving this gigantic mess in the hands of a new administration.
Fed Interest Rate Cut May End Up Making Matters Worse !
Excerpt:
The Federal Open Market Committee’s half-point cut in its Federal Funds target does not address the leverage and credit issues in the banking system.The news has been filled with reports about Wall Street using bailout money to obscene bonuses. One Example: AIG blew a fortune on lavish parties for the bosses. Reducing interest rates further almost guarantees banker will figure out clever ways to borrow more money -- to line their own pockets. Sticking it to the American taxpayer again and again.Indeed, by penalizing savers it worsens the economy’s supply/demand imbalance for funding. The cut doesn’t solve short-term problems and worsens long-term inflation worries.
The banking crisis was not caused by over-high interest rates. Its two main causes were large and unknown housing-related and other credit losses and an urgent need for banks to reduce their leverage.
Those problems are being addressed by huge Fed liquidity doses and plans to directly inject $250bn of new capital into banks via the Troubled Asset Relief Programme. Reducing already low interest rates will have no significant effect in alleviating the causes further. * * *
I recall a line used in one of the 'Lethal Weapon' movies. Joe Pesci shouts 'First they **** you. And then they roll you over and they **** you again . . .' I urge everybody to read the report I linked to above. Then take three aspirins and pray for our country.
Isn’t one tenent of the Muslim religion that lending of money should carry NO interest?
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