I have a question about the federal rate cuts?

[Maggie_May]

Why every time the fed cuts rates it helps banks borrow money for less. As I see it when the fed cut rates are dollar goes down goods go up in everything we buy including gas. When the fed cuts rates does your house payment go down or even your credit cards? The banks get the break but we don't. So I guess my question is does a fed cut help out the average consumer?


NEW YORK (AP) -- A key barometer of consumer sentiment dropped to the lowest level in two years, igniting concern that the upcoming holiday shopping season would be lukewarm.

The Fed rate cut, as expected, made many Wall Street traders happy and goosed the stock market indexes. According to the Fed, “Developments in financial markets since the committee’s last regular meeting have increased the uncertainty surrounding the economic outlook.”

Signaling that it might cut rates more if necessary in months ahead, the Fed announced that the central bank would “continue to assess” the economic outlook and “act as needed to foster price stability and sustainable economic growth.”

But the Fed action also caused an immediate spike in the prices for gold, silver and the price of oil futures. So evidently, some savvy players understand that temporarily cheaper dollars are not necessarily good for the long-term health of the U.S. currency or economy, and this understanding is reflected in things with intrinsic value like precious metals and energy fuels.

[Demeter]

1. NO

Debasing the currency doesn't help anyone except the pirates that the Fed is trying to bail out. But inflation and death will get them in the end, too.

[Maggie_May]

3. Than why do it

Wasn't it the consumer that help get us out of the last recession? Why hurt the consumer? Wouldn't it be better to leave rates alone?

[Demeter]

4. They Are Trying to Defy the Law of Gravity

and squeeze one more corporate crook into the billionaire class before the whole thing comes crashing down. The goal is to have it all crash on a Democrat's watch.

[progpen]

2. Just another version of that Repug favorite...

the Trickle Down Theory.

Which interestingly enough sounds like "Piss on the middle class".

[whistle]

5. As long as no one group cheats or gets too greedy the risinf tide can raise

...a lot of boats, but right now most boats are out in stormy seas. The Motely Fool has an interesting take on the whole thing:

<SNIP>
How the Fed Affects the Economy
Alan Greenspan and the Federal Reserve
By Chris Rugaber (TMF Chris)

Every six weeks or so, traders on "The Street" eagerly anticipate the latest decision from Mount Olympus, otherwise known as the Federal Reserve. Will they cut interest rates, or raise them? By 50 basis points (0.5%), or 25 (0.25%)? Or will they do nothing?

<sut to end>
Ripple effects
Not only do open market operations affect the federal funds rate, but they also impact the amount of money circulating in the economy. If the Fed creates reserves to buy securities, this increases the amount of money available to banks to loan to consumers. For example, if a bank's reserves are increased by $100 million, it may loan $90 million of that to businesses and individuals, who will then deposit much of those loans in other banks, who will then be able to loan the funds again. This is another way that the Fed's open market operations can help boost economic growth. Of course, there is a reverse effect when the Fed sells securities and reduces the money supply as a result.

More importantly, interest rates influence each other, particularly for similar time periods. In other words, short-term rates are generally similar and affect each other, and the same is true for longer-term rates. Otherwise, market forces generally correct any outlying rate.

As a result, if the Fed increases the amount banks pay for their overnight reserve loans, then banks will follow suit by increasing rates on their short-term loans, essentially passing on the price of higher rates to the consumer. This also works its way into longer-term rates such as mortgage loans and corporate bonds, particularly if higher short-term rates are expected to continue.

It all takes time, of course, which is why most observers believe that any monetary policy changes by the Fed take at least six months to work their way through the economy.

The Fed's monetary policy tools are blunt instruments, and there are many other factors that affect the U. S. economy, such as the fiscal policies of the federal government. Investors may want to keep an eye on the Fed because of its influence on the economy, but the Fed is just one of many actors on the economic scene. As Warren Buffett stated in our intro, the quality of individual businesses should be foremost in the mind of individual investors.
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http://www.fool.com/Specials/2001/SpecialFed/AffectsEconomy.htm