Bernanke Reduced Inflation Threat By Cutting Rates

Tuesday, December 16, 2008, 4:03 PM | 1 Comment

Federal Reserve Chairman, Ben Bernanke cited weakness in economy and reduced inflation threat as justification for cutting rates to a record low range of 0% to 0.25%. In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%. This marks the tenth time it has cut rates in the last 15 months.

The federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans.

Several banks announced they were lowering their prime rate to 3.25% in light of the Fed’s decision. Typically, the prime rate is 3 percentage points higher than the fed funds rate. It was 4% before Tuesday’s rate cut.

In a Nutshell
There are some concerns that taking the fed funds rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.

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