Fed Inevitable Rate Cut To Boost Economy and Job Market

Susan Duey
October 28, 2008 — 1,480 views  
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As economic problems persist in market despite government efforts to ease crises with bailout packages another step would be necessary. Fed. might have to cut rates by 0.5 to 1 basis points to ease Wall Street desperate moves of selling stocks.

Even Alan Greenspan who ran the Fed for 8 ½ years admitted that he made mistakes that may have aggravated the economy's slump.

With economy already at recession level, Fed would have to cut rates to ease economic vows as consumers have cut back sharply. 401(k) s have dropped in value and home values just keep declining. Businesses stopped hiring or slowed down on hiring as well as hard to get financing is contributing to slowdown of economy.

Thousands are losing their jobs at Merck. Thousands more are being cut at Xerox, Yahoo, Chrysler and General Motors. There are so far 27 states in recession and 15 are close.

So far 3/4 of a million jobs have been lost since the beginning of the year and at least 1.5 million to 2 million jobs will be cut. Many expect the unemployment rate, now at 6.1 percent, to hit 7.5 percent or higher by next year.

Only industries that are adding jobs are healthcare, educational services and some defense jobs. Biggest job losses come from financial services and construction.

Credit is known as stabilizer in economic times and there is none. Retail stores such as Mervyn's is going under, Sears is closing stores as well as Circuit City. With holiday shopping season retail stores usually get lift and it I will be unusual to see any retail stores going bust before holiday season is over.

With economic slump Fed policymakers are expected to lower central bank's key interest rate at the conclusion of a two-day meeting Wednesday. In turn, rates on home equity, certain credit cards and other floating-rate loans tied to commercial banks' prime rate should drop by a corresponding amount. Fed hopes that lowered interest rates would bring more consumers to shopping spree, thus boosting overall economy.

With lowering rates it would increase the difference the difference between the rate banks charge each other to borrow overnight and the rates they are paid on Treasury securities.

Give the recent financial crises now it is time to re-valuate your portfolio. Moderate investors, who are either closer to retirement or still have substantial time, should invest 40%-70% in stocks and 30% to 60% of their assets in fixed income.

Conservative investors, who, for instance, may already be in retirement, should have generally 20% to 40% in stocks.

Economic turmoil will continue with some time and it is necessary to spread out your investments. Fed would have to lower its rates in other to help economy; however, job slowdown might be there for a while.

About the Author

Susan Duey represents RateTake Mortgage Loan marketplace. RateTake matches consumers with multiple lenders offering low mortgage rate quotes. RateTake also operates Bill Debt Help portal.

Susan Duey