March 18th, 2008 by john 
in Categories: 
The Federal Reserve cut the federal funds rate by 3/4 of a point today to 2.25%. Is this good news or bad? Depends on your perspective. Should you care? Let us take a look.
First of all this key interest rate will directly affect consumers. Specifically spenders. In the good news column, we will see lower interest rates on personal loans, such as auto loans. And if the credit card companies can find it in themselves to squeeze a dropping or two for us, we might see lower credit card interest rates. This in turn should encourage some good old-fashioned consumerism, helping to uplift the economy, or so the theory goes. Whether this, combined with the already announced Economic Stimulus Package will work, remains to be seen.
Now for the bad news. Lower interest rates could entice already financially strapped consumers into taking on more debt, which they probably cannot afford. Secondly and close to my heart, is that we definitely will see a drop in the interest rates paid on savings. Bad news for me, you and all retirees’. A year ago, I was making 6% on my short term savings, as of today it stands at 3.10%. Tomorrow it will drop to 2.35%. Bummer.
AND what really bothers me about all of our governments’ moves of late is that it looks like we really are in a recession. Probably in the early stages and our government appears VERY worried. So let us hope that the brainiacs in Washington have it right.
Oh ya, just in case you are wondering, you SHOULD care 
What do you think about the state of economy? Has it affected your family’s lifestyle?
Related Posts:
My name is John.
{ 5 comments… read them below or add one }
It seems to me that the Fed is operating in true panic mode! But – let’s get this straight – Bush announced that he wanted to make home ownership available to more people. Programs were started to let anyone who applied for a loan receive one. These low-interest loans were sold in bundles, without anyone verifying the credit worthiness. The chain of financial institutions got in trouble. So, the problem was easy credit, with lower interest rates acting as an enticement. Now the Fed says the solution is – lower interest rates?? It seems improbable that this will work.
Last week, according to an MSNBC poll, 44% of people think that the economy is in serious trouble. This week, the figure is only 41% My question is: where is the other 59% shopping? Could someone please wake them up?
Reply
I certainly agree with you about the fed being in panic mode. We are witnessing our government taking unprecedented action. I’m speaking of the fed meeting on a Sunday to lower interest rates and deciding to bail out the 5th largest investment bank in the world. I too am sceptical of lower interest rates being the fix all. It sure seems that we are in this mess in part because of super low interest rates. It is strange that more people don’t seem to understand the magnitude of our current situation.
Reply
I just think the current economy is scary period. Personally, my natural response is to stop spending and pay off all our debts as quickly as possible. A good thing? I don’t know, but seeing folks in serious debt with lower interest rates continuing to beckon them into further debt is sad.
Reply
Hey Jenn – I hear ya! If everyone stopped spending and started saving and paying off debt, we would be in real trouble. Lucky for you and me, I think some people will not stop spending, EVER. Until you pry their credit cards from their cold, dead fingers.
So, personally, I think it’s a good idea to save and pay off debt. It’s funny you mentioned that, as I have a post almost completed on that subject!
Reply
I will check it out!
Reply