U.S. Federal Reserve writes a new economic script

The U.S. Federal Reserve cut its benchmark interest rate by half a percentage point yesterday and signaled it may cut rates further if that is necessary to stave off a recession.

The cuts come on the heels of emergency cuts of three-quarters of a point last week and represent a curtailment of the Fed’s “gradualist” policy, in which it had generally sought to make incremental adjustments of one-quarter point at a time.

The Economist deemed the measure “aggressive activism” and says it represents a new policy script for the Federal Reserve.

Asian markets responded tentatively to the rate cut in mixed trading this morning, uncertain whether lower interest rates would be enough to overcome lingering credit problems.

The Boston Globe reports the rate cuts could translate to “lower credit costs for consumers and businesses, relief for homeowners with adjustable rate mortgages, and a better chance to halt the economy’s deterioration.”

But experts say a slew of problems remain and add that rate cuts aren’t a cure-all. One potential problem is inflation, which remains relatively low in the United States but could spike due to a combination of rate cuts, rising energy prices, and the falling dollar.


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