So everyone was expecting the Fed to cut the Fed Funds rate today, and surprise! It did, by half a percentage-point, to the bargain-basement level of one percent. I mean it's nice and all that the Dow went up a bajillion points yesterday, but I wonder if cutting interest rates is really the solution to this problem. First off, is it really going to do anything? The Fed has been lowering rates for the past 18 months and so far, nothin'. Why would it make a difference now?
Secondly, if easy credit was what contributed to the housing bubble in the first place, then isn't lowering rates back to the levels of '03 and '04 just history repeating itself? If this rate cut did actually work, which nobody really thinks it will, then wouldn't that be a bad thing?
And what's the deal with today's WSJ front-page article raising the specter of deflation? DE-flation? Weren't we talking about rapidly rising commodities and food prices like.. two weeks ago? I know oil has come down from its nausea-inducing heights, but it still costs over twice as much a barrel than it did only five short years ago. And don't even get me started on eggs.
Sometimes I think that Ben and the Maiden Lane Boys (my cute new nickname for the Fed, good right?) have just gotten lazy and are falling back on a tried and true, although unfortunately useless, tactic. Remember what happened to Japan, Ben!
http://www.nytimes.com/2008/10/30/business/economy/30fed.html?hp
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