The Federal Reserve on Tuesday slashed its key interest rate to a three-year low and signaled more reductions are likely, unloading heavy artillery in its effort to keep the credit crunch from triggering a prolonged recession.
The three-quarter-percentage-point rate cut, though extremely aggressive by any historical measure, was still seen as a pulled punch by Wall Street analysts who believe it will take a full percentage point cut to starve off the looming recession. This is another sign of the severity of a situation that has already claimed Bear Stearns and forced Fed officials to use Depression-era tools.
In the wake of the Fed's decision, Wall Street brokers are cheering and small business owners hold their collective breath. The move’s consequences are still unclear.
Justin Downey, Owner of Justin Downey Marketing, a full-service marketing firm specializing in marketing for small businesses remarked, “Lowered interest rates mean it’s easier to borrow, but it doesn’t influence spending. Consumer spending is still down even as stock prices are rising. We’ll just have to wait and see.”
Asked about the possibility of a recession, Ben Bernanke, Fed Chairman, sidestepped the question. “You really cannot make a determination,” he said with a sly grin, “until well after the event...”
