The Fed cut interest rates! By half a percentage point! That's more than we expected! Wow! Great!
Was that a good enough job of feigning enthusiasm? We know we're supposed to be really excited about this rate cut, but darned if we can remember exactly why. Yeah, lower rates are supposed to make everyone buy stock (and everything else), but the bits of Wednesday's papers that weren't about Harvey Pitt or the GOP seemed to indicate that a rate cut wouldn't do much this time. Folks are avoiding stocks for other reasons, and rates are already at 40-year lows. Unless your last accounting job was at WorldCom, you just can't go lower than 0% financing.
"If you think this cut will mean much for real-world things like your mortgage, your job security or even your stock portfolio, think again," said TheStreet.com's Eric Gillin. Gillin explained that rate cuts don't affect fixed-rate mortgages, but they do make adjustable-rate mortgages, some short-term consumer loans, and stocks slightly -- and we do mean slightly -- better deals. Your CD rates will go down, though. CNN weighed the benefits of refinancing your mortgage. But mostly, it seems like the Fed just wants you to feel better.
The cut "was aimed at shoring up business and consumer sentiment amid the threat of a conflict with Iraq and other uncertainties," said Reuters. "The Fed sought to provide a measure of psychological reassurance about the economy at a time when many private forecasters fear it is in danger of grinding to a halt." Business Week agreed, "Chalk this rate cut up to a psychological ploy to coax corporate chieftains into spending more by saying the risks to the economy are now balanced."
It backfired. Fortune's Andy Serwer summed up the worries of many when he wrote, "I wonder how much deep doo-doo we are in that the Fed felt obligated to cut .50 instead of the widely expected .25." The Fed called the doo-doo a "soft spot," a kindly euphemism for times that are actually relatively hard.
Once again, Unspun felt compelled to leave the country for a dose of reality. The Guardian referred to an "emergency" cut "to prevent the world's largest economy from sliding back into recession," while the BBC referenced the States' "stalled economic recovery." The Financial Times was one of the few outlets to mention that "inducing debt-heavy consumers to borrow more would make matters worse over the long run." Worse? What'll the Fed call that, an extra-soft spot? - Jen Muehlbauer
How a Fed Cut Would Affect You
http://www.thestreet.com/funds/ericgillin/10052430.html
Does It Still Make Sense To Refi?
http://money.cnn.com/2002/11/06/pf/yourhome/q_refi/index.htm
Fed stuns markets with 50-point rate cut (Financial Times)
http://tinyurl.com/2i0k
(Paid subscription required.)
Fed Aiming At Psychology With Forceful Rate Cut (Reuters)
http://www.forbes.com/markets/newswire/2002/11/06/rtr786549.html
Greenspan Worry? Not for the Record (Business Week)
http://tinyurl.com/2i0l
Fed Cuts Rates a Half Point, Changes Its Risk Assessment
http://online.wsj.com/article/0,,SB1036526820823105788,00.html
(Paid subscription required.)
The Final Cut? (Fortune)
http://tinyurl.com/2i0m
The Fed makes its move
http://money.cnn.com/2002/11/06/markets/fedcut/index.htm
Size of cut shocks Wall Street
http://www.guardian.co.uk/business/story/0,3604,834990,00.html
US makes big interest rate cut
http://news.bbc.co.uk/2/hi/business/2410547.stm
Rate cut would have little effect
http://www.bayarea.com/mld/mercurynews/business/4455975.htm
Fed's Feel-Good Move
http://newsobserver.com/business/story/1890444p-1877016c.html
