CHARLESGATE Blog

Federal reserve drops key rate to near 0%

Written by Michael DiMella | Dec 17, 2008 5:00:00 AM
The Fed cut it's key federal funds rate to almost zero this week which is a bigger cut than most "market experts" expected.  In its statement the Fed says it expects to keep the rate that low for a while.

Here's a graph of the federal funds rate from 2004 to present:

As you can see, there has been a steep, steep drop especially in the past few months (and then previously in last '07 and early '08).

Will this latest move make a difference?

From  cnnmoney.com:

In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."

Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.

This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.