Reserve cuts interest rates

01/25/08

While it may be easy to observe the suit-clad men and women on Wall Street and assume recent economic developments have no impact on the average student, it may not be the smartest move.

The Federal Reserve cut interest rates three-quarters of a percentage point on the federal funds and discount rates. The federal funds rate affects how much a consumer pays on home equity lines of credit, but more importantly for college students, automobile loans and credit card debt.

The discount rate is how much banks are charged for borrowing from a central reserve bank.

While these cuts may translate to a small benefit for the consumer, they will also lead to smaller interest checks for anybody with savings accounts, certificates of deposits or money market accounts.

Most college students probably don't have a huge savings accounts waiting for a rainy day or a home equity line of credit, but the economic atmosphere is something to be aware of.

Each May and December, Baker pushes a new flock of baby birds out of the nest. Some fly away and make their own nest. Some crash to the ground and chirp pitifully. The May batch of baby birds may be tossed into a stormy world if the tone of the cuts are a reflection of reality.

The Federal Reserve normally announces rate changes during scheduled meetings, with the next one planned for Wednesday. This was the first unscheduled rate change since the market reopened after the Sept. 11, terrorist attacks.

Some market experts speculate the reason for the emergency rate cuts are meant to help calm foreign market panic as opposed to reinvigorating the domestic economy, bringing up the question, does the domestic economy need reinvigorating?

Apparently so, if the Bush administration feels the need to pump $150 billion into the economy through a rebate stimulus program being tossed around Congress.

It is time to watch and know what kind of world we're getting ourselves into. If foreign market panics, gripes about the weak dollar and emergency interest cuts aren't enough to signal there may be a problem boiling. There may be one thing to seal the deal: CNN.com now has a section called Recession Watch 2008.

Comments

Use the comment form below to begin a discussion about this content.

Sign in to comment