Cogito, RE: Not necessarily. People aren't willing to take risks when it costs what it does to borrow right now. But if money were a bit cheaper, they might be more willing.
Thing is, if the Fed reduced their target rate for Fed Funds, all indications are that money would be more expensive, not cheaper.
When the Fed lowered the discount rate on Friday, every single fixed income instrument dropped in value, save for the discount rate. Debt became more expensive, not cheaper. And since nobody was borrowing at the discount window in the first place, nobody was able to take advantage of a discount rate cut.
Same thing goes for Fed Funds. There is NOBODY that is borrowing or lending Fed Funds at 5.25% right now, which is the Fed Funds target rate. The Fed lowers its target, it won't change a thing. And, in fact, the ARM subprime loans that started this whole thing would actually get hurt by a Fed Funds rate cut, since they are priced off government securities or LIBOR, not the Fed Funds target rate. And those would get more expensive.
The Fed has lost any control it had over interest rates. |
