Fed looking beyond interest rates
The Federal Reserve will meet today to discuss interest rates today, and the consensus is keep them low. John Dimsdale reports the Fed will be looking at other items that could potentially light a lending fire.
The Federal Reserve Bank (www.federal-reserve.org/)
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TEXT OF STORY
Steve Chiotakis: The Federal Reserve Board discusses interest rates today. But they'll need a razor blade to cut any more. Short-term rates are hovering at just a hair above zero already and, given the loan environment, the consensus is keep 'em low. So they'll look at other items that could light a lending fire. Here's Marketplace's John Dimsdale.
John Dimsdale: At its last meeting, the Fed cut the interest rate it charges banks for overnight loans, the traditional tool to persuade banks to lend more. But the policy isn't working, and former Fed board member Lyle Gramley says interest rates can't go any lower.
Lyle Gramley: That won't even be on the table. The question will be what non-traditional measures are most likely to be effective under current circumstances.
The credit crunch has forced the Fed to move beyond interest rates.
David Jones: It's a new playbook for those of us who watch the Fed closely.
David Jones expects the Fed will decide to give banks access to even more money by buying up mortgage-backed securities and other consumer and small business loans to take them off the banks' balance sheets.
Jones: I would see the Fed with its unconventional policy tools as taking the initiative here trying to get the credit markets working again.
However, Fed policy makers know they can only afford to keep interest rates at record lows as long as inflation remains tame.
In Washington, I'm John Dimsdale for Marketplace.
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From West Chester, PA, 02/20/2009
I am a Realtor in Chester County and have watched the suffering of those who have lost their homes to foreclosure and reduced home values. One idea that has been echoed my many including a Wharton professor just yesterday is to lower the interest rates even further. This would help the housing market, which would in turn help the economy. Jobs related to the new-home industry and elsewhere would increase from plumbing and carpentry and from landscaping to furniture sales. Even if a reduction would be available for the short term, wouldn't that even help the banking industry? Thank you, Sharon Esterly
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