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Fed poised for interest rate cut

Posted by kim carpenter on December 16, 2008
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Ray Cortopassi/Eyewitness News

Indianapolis – The Federal Reserve is poised to take new action not so much to spur the economy but to keep it from sinking further into the abyss.

The Federal Reserve began a two-day meeting to assess the economy and will likely move the cut the rate that banks charge each other on overnight loans. The federal funds rate now stands at a historically low 1 percent and should come down to half a percent.

“They’re gonna be sending another signal that they’re doing everything they can in the economy,” said Kenneth Carow, IUPUI associate professor of finance.

But some argue the cuts to date haven’t done much to keep the wheels from falling off the engine. That’s something Carow takes exception to.

“If the Fed had done nothing during this time period and just held steady with their policy, we would have seen our credit card rates going up faster than they have, we would have seen mortgage rates going up faster,” he said.

Also this week, the White House may announce its plan to save the automotive industry, something Congress failed to do last week. Its sales were down by 2.8 percent in November, its worst month since 1982, which is also the last time jobless claims were this high.

The upside to this is – for the consumer who is able – now is the time to buy, say they experts, whether it’s for a new mortgage or new car.

“You don’t want to go out there and borrow to the hilt, but this is an opportune time for those who do have financial capacity to look at what they might be doing,” said Carow.

Gary Pedigo says every car on his Chevy lot is marked down and ready for sale.

“Ironcially, right now this is probably the best time in history to buy a new car, because of finance rates, availability,” he said.

“We’ve been looking and we went to two or three dealerships, the deals are actually pretty good now,” said Yvonne Bingham-Duir, Chevy customer.

This other commodity is time, which this economy will clearly need. In January our current recession will enter year two.

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