Ezra Klein: Fed Cuts the Discount Rate to 5.75%

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August 17, 2007

Fed Cuts the Discount Rate to 5.75%

By Deborah Newell Tornello
a.k.a. litbrit

Not that this was entirely unexpected (though I read plenty of self-assured speculation that Bernanke would hold out--for a while, at least). But still.

With risks to the economy from financial market turbulence rising "appreciably," the Federal Reserve on Friday lowered the rate it charges banks on loans they receive from the Fed's discount window, though it opted not to cut its primary policy tool, the federal funds rate.

The Fed's decision to lower the discount rate and ease the terms of discount borrowing but not to cut the fed funds target suggests that for now it believes the problems in the markets are mostly related to the availability of cash, not the price of cash. (Read the Fed's statement.)

One wonders if (and when) the interest rate might be treated similarly, and how long it will be before the nasty I-word fully rears its head. Economic reporters may be great looking--some even earn nicknames like The Money Honey--but economic realities tend to be rather less attractive, at least in the opinion of this observer.

August 17, 2007 in Economics | Permalink

Comments

litbrit...

when i look at the corporate greed of management and lack of ethics, environmental abuses, excesses....i wonder why i continue to invest in the stock market.
....just as one small person, making every effort to be astute and make reasonable choices, i realize that that there is little transparency,immeasurable dishonesty and that the markets are as fixed as the gambling tables in casinos.
....several weeks ago, i printed out my portfolio, that i care for and prune like a small garden... and said to myself, "i want a picture of this for posterity, because i know next month, it will look very different."
....poised for the slide, i go up and down, like the countless other, gullible, serious, concerned, befuddled investors.... suffering through the loopy cycles, knowing that i am trusting criminals with my money.
....i know, "trick me once, shame on you."
"trick me twice, shame on me."
....considering other options (not"options") i plod along, weeding, plucking and worrying through the droughts.

Posted by: jacqueline | Aug 17, 2007 10:29:08 AM

With uncle buck so weak after years of excess, the I-word is certainly a concern. But, with the huge debt load people carry I am mostly concerned the impending R-word might become a D-word. Or, to avoid the D-word and try to bail wall street out we end up with extreme I-word or maybe even a hyper I-word.

By the way, have the powers that be gone beyond years of manipulating the I-word data and now forbidden the actual use of the full word? I suppose the white house could chime in going forward and assert the use of the I-word gives aid to "America's enemies" or something like that.:)

Posted by: greg | Aug 17, 2007 10:31:27 AM

Posted by: greg | Aug 17, 2007 10:49:10 AM

re maria bartiromo....

just shows you how far a mysterious pair of almond shaped eyes and notoriously fluttery lashes can get you. years ago, maria had a beguiling way of fluttering her eyelashes while delivering up the market perturbations each morning.
it made the news easier to take!
i dont think she does it anymore.
she should....it was charming!
here is a funny tale, related to the bevy of squawkbox beauties.
years ago, there was a "bring your child to work" day..and the hosts all brought their children and "displayed" them proudly before the camera, as they delightfully wriggled and winked in the bright lights.
....they asked each child what they wanted to be when they would grow up.
one of the little girls, whose mother was one of the other high-powered, platinum-haired and airbrushed money-honeys... was then asked what she wanted to be...
...one might have thought that with such a beautiful and "successful" mother, she would have said,"i want to be on tv..."
but she said:
"i want to be just like my nanny when i grow up."

............the expression on the faces of all the adults were quite priceless!

Posted by: jacqueline | Aug 17, 2007 10:55:09 AM

jacqueline, Robert and I put our retirement in cash reserves shortly after 9/11. As for investments since then, the husband is kind of big on being able to control things (quelle surprise!) and has long taken the stance that he'd rather invest in and grow his own business--something from which he knows he can derive a healthy profit without having to worry (too much) about the ill intentions and malfeasance of game-fixers--than plunk down hard-earned money only to watch it get churned and burned by insiders. But it's not as though we haven't lost money in the past--one lives and one learns.

greg, since I don't work for the government or the stock market, and I've already been accused of everything from being delusional and insane to hating America (though that guy is gone, thankfully), what the hell: INFLATION! And while we're on the topic of the shitty exchange rate, forget about that European VACATION! (Which, incidentally, we did this summer, and will probably do next year, too, if the Euro keeps going all Goliath; I expect the Yuan to follow suit, which it surely will.)

Posted by: litbrit | Aug 17, 2007 10:55:22 AM

Well, for what it's worth, at the start of the week the market was pricing in an 80% chance of a Fed Funds cut by next month. Some of that was certainly wishful thinking, but I'd say it's more likely now than it was then.

Posted by: Ginger Yellow | Aug 17, 2007 2:05:25 PM

Commenter over at Rittholz summed it up nicely:

Weimerica.

Posted by: bob mcmanus | Aug 17, 2007 2:25:41 PM

Litbrit, Its too late, the tickets were bought long ago. I leave for europe tommorrow! I am assuming that in addition to not hating America and not being delusional you also are not some kind of freaky internet super spy, and that your response was meant as a general comment.

But it sure threw me for a moment!

Posted by: greg | Aug 17, 2007 4:18:01 PM

No worries, Greg. I was only making a general comment about how exorbitantly expensive it would be for my family of five to travel there in any sort of comfort and stay there for any length of time (don't get me started about dreams of going clothes-shopping in Milano, speaking of delusional). Ah, my comment was made out of jealously, mainly, because I have a few superwealthy friends who've been going there all summer, exchange-rate be damned.

You have yourself/yourselves a wonderful holiday. And if your travels include a stop in England, please kiss her Hello for me. And eat lots of Crunchie bars. *sob*

Posted by: litbrit | Aug 17, 2007 8:56:43 PM

Thanks Litbrit. Will be sure and try a crunchie bar as a nice change of pace from the 7 pounds of trail mix, 24 power bars, and 36 fruit snacks that the two of us are bringing! Exchange rates not be damned here, my girlfriend is extremely frugal (and extremely strong!) so when I explained the cost increase due to exchange rates she decided we pack a lot of food (and only sissies complain about a few extra pounds of baggage... whimper).

Posted by: greg | Aug 18, 2007 12:15:17 AM

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