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Why has the Fed repeatedly lowered interest rates?

Question/Comment: Repeatedly, the Fed has lowered interest rates, and repeatedly, the market has responded, and repeatedly, it has continued its downward trend. It is obvious that that does not work. Do they want simply to lower interest rates and find this a good excuse? To what purpose?

Paul Solman: Hey, we don't know what would have happened if they HADN'T lowered rates, right? Things might have been even worse, even sooner. The Fed was trying to keep the economy from stalling out, trying to prevent a freeze in all borrowing, which would be catastrophic. It certainly didn't turn it as planned. But what else could the Fed have done, besides maybe push to set up a new institution to buy bad debts, such as is now being proposed? You wouldn't do that until you had to, though.

And the Fed can't do that on its own. If you want to blame the Fed, do so for keeping interest rates low during the boom times without demanding regulatory oversight on the speculation it was, by its loose policies, encouraging.

-- Posted September 21, 2008 | Comments (2) | Permalink