Markets Jittery as Fed Announces Near-Zero Interest Rate Freeze

BY Elizabeth Shell  August 9, 2011 at 2:25 PM EDT


Federal Reserve officials announced they would keep interest rates unchanged after a faltering economic recovery and a U.S. credit-rating cut provoked a rout in global stocks. Photo by Andrew Harrer/Bloomberg via Getty Images.

Editor’s note: Following a 634-point fall in the Dow on Monday, markets have been volatile again Tuesday. The Federal Reserve announced it will keep its key interest rate near zero through mid-2013. The Fed noted that the economy has grown “significantly slower” than it expected. We’ll see how the markets take the latest news. In the meantime, we’ve compiled a list of some of what we’re reading on the markets and the economy.

Hesitation, worry and fear are driving the stock market today, according to the New York Times.

Just a few months ago, analysts were predicting that the economy would grow about 4 percent this year. The forecast is now closer to half that number as a wave of pessimism sweeps the country.

Daniel Gross of Yahoo Finance writes that what’s needed right now from politicians is policy, not the posturing he says he have been getting.

Instead, we need declarations — of policy, not of posture — from all the parties who have contributed to the current mess. The markets crave certainty. And while no single entity can guarantee it, each of the key players can do a better job of providing certainty on where they stand.

The Washington Post finds a silver-lining for potential homebuyers in the form of super-low interest rates.

The weekly average rate for a 30-year fixed mortgage has dropped to 4.39 percent, according to mortgage giant Freddie Mac, the lowest level this year. Mortgage brokers say that is fueling a boom in refinancing and piquing the interest of new home buyers who had been waiting on the sidelines.

Mark Thoma writes that the S&P decision to downgrade U.S. debt from ‘risk-free’ was due to what it saw as an unwillingness in the country’s political system to pay off its debts.

The worry is that we must cut spending and raise taxes to get the debt under control, both will be needed, but as the recent negotiations over the debt ceiling made clear, one party is unwilling to allow the necessary tax increases.

And where did the rating agencies get all their power from in the first place? Planet Money finds it all started with the railroads.

Putting railroads across the continent required the kind of capital that was unheard of at the time. They needed investors who were literally sending your money out into the wilderness…”And investors wanted to know, who are the guys who are likely to pay me back?”