Last summer, I wrote:
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course.The problem was, rather than biting the bullet, the Fed simply gummed it a little. Better late than never? Maybe. We'll have to see.
For many of those who had Adjustable Rate Mortgages that rose quickly through 2005-06, the rates cuts and, eventually reduction in ARM rates may be too late. For those who had plunged deeply into Home Equity loans, they may see some welcome relief.What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Will it fix housing and economic problems? At this point, unlikely. It will, however, stabilize the situation and avoid worsening.
As I see it, the recession is already here. It will take a few months for the data to reflect that, but there is enough anecdotal information to understand that is the case.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?I suspect that in a short time, the stock markets are going to realize that the latest rate cut is a good thing... even if it isn't a cure and is a little late... for the economy, and will react accordingly.
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