Angry About Fed Rate Cut
January 24th, 2008 by Ana
OK, I’ve waited a couple days to temper my words on the subject of the Federal Reserve Bank’s recent emergency rate cuts … but my feelings have not gotten any milder yet. I am angry!
First, this affects me in a NEGATIVE way. This may sound strange considering I am not debt free yet. But seriously, my mortgage is a fixed rate and hubby’s stupid truck note is also fixed. Our credit cards are gone, but the Fed’s rate cuts won’t have an immediate effect on those anyway. I have no plans whatsoever to run out and finance ANYTHING.
What this does affect, both immediately and negatively, is my money market account. Every time the Fed does a rate cut, my interest rate goes down. Granted, I only have my baby emergency fund and it’s only $1600 but still I am seeing a big difference from what it earned back in the summer just six short months ago.
Aside from the negative impact on my paltry little savings, I have to ask: HAVE BERNAKE AND THE FED LOST THEIR MINDS??? Isn’t this whole problem caused by too much credit? Over the last six months or so I have read about the subprime mortgage fiasco, now I am reading about how credit card defaults are up (yahoo’s article “credit card crunch” here for those who don’t like CNN Money)! Those are examples of being overextended in credit. So the solution is to make credit easier to obtain? And cheaper? Am I the only one who sees something wrong with this picture?
Let’s not forget about inflation either. Isn’t the Fed supposed to be guarding us against inflation? Every time the Fed cuts the rate, I read about how the dollar has fallen against other currencies … so they must be related although I am not sure how. When the dollar falls, inflation goes up … especially since the U.S. has lost a good portion of its manufacturing base and instead mostly imports goods. Inflation is a huge concern for me since I started doing a budget! Gasoline and groceries have both risen over the past year, and I personally do not want them to eat up too much of my monthly income. I doubt many of you want to see those two necessities to skyrocket either.
Wednesday’s rate cut looks like it was done just to ease the stock market and prevent a serious correction. That’s what it looks like to me down here in the trenches at least. It FEELS like it was a measure to make people far richer than I am feel better … while making my economic picture a little more difficult! Again, am I the only one who sees something wrong with this picture?
The bottom line as far as I can see is this latest rate cut does not help me at all. Worse yet, it could hurt me financially for several months. It doesn’t even look good for the economy in general, from my point of view … it seems more likely to prolong our current credit problems! How can this be a “good thing”? Am I really the only one who sees a problem with this picture?
Standard disclaimer: I am definitely not an economist, just an over-educated pizza delivery driver. If you feel I have made some grievous error feel free to correct me.
Posted in random stuff, savings |
January 24th, 2008 at 12:45 pm
Ana, I’m with you. Our FFEF is not going to earn nearly as much interest now. For a while, we were rocking right along. Let’s hope this is a temporary measure to calm the media’s Chicken Little attitude and keep the stock market up. And then we can get back to earning interest again.
January 24th, 2008 at 1:16 pm
Preach on. My thoughts exactly were to get very angry when my brand spanking new Etrade savings account went from 5% last week to 4.3% this week. We are told to save yet encouraged to spend. No wonder so many people cannot come to grips with personal finances.
January 24th, 2008 at 2:53 pm
It’s not a pretty thing, but it would be far, far worse if the economy goes into a REAL tailspin. That’s really what the cut is trying to forestall.
Imagine if you would, the Fed NOT cutting the rate. Before the cut, they were looking at a 500 point PER DAY drop of the DJIA. That means that billions of dollars of value in companies across the board were evaporating. That also means that many companies would have reacted by ‘circling up the wagons’. (massive layoffs, cutting back on expansions, acquisitions, and mergers. Cost-cutting measures until blood was drawn).
You think the housing market is bad now, imagine if credit got HARDER to acquire by an order of magnitude or two. Countrywide was bought by Bank of America, and they had to declare a ~95% reduction in revenue for the quarter. If banks started folding altogether, it would be like a huge chain of dominos.
I don’t like them ‘giving’ a break to big businesses, but I’d like it less if the country’s economy REALLY started a downward spiral.
January 24th, 2008 at 3:40 pm
Me too!
January 24th, 2008 at 6:31 pm
But don’t you see? The fed thinks we’re all worried about our precious FICO scores…and that any of us “debt free” people are just plain nutso anyhow.
The average American loves debt. They may not realize their love affair, but they do. My own mother, who is married to a millionaire and has more money than she needs, worries about that precious FICO score. She just got a Pier One credit card because they were running a great deal 10% off anything you bought that day if you got a card!!! (eye roll here)
More Americans think like my mom, than think like you and me (millionaires or not)
January 25th, 2008 at 9:12 am
I understand! I can just encourage you to focus on things like your post about why you’re not worried about recession
Also, I can tell you that those feelings about things like this lighten up a LOT once you are debt free. I’ve been debt free for a few months now, and finished off my emergency fund, and it’s like a dream already! 
PS - I used to be a 14 year old boy, and I ate more then than any other time in my life I think.
January 25th, 2008 at 2:35 pm
It isn’t just about consumer spending, it’s also about business (which arguably is the bigger concern). Lowering the fed funds rate also lowers the discount rate, the rate at which banks borrow from the Fed to prop up their reserves. Given the writedowns occurring, we should worry about the health of the banking system.
In addition, increasing the supply of money helps combat unemployment, which is a typical side effect of recession.
From the consumer perspective - when the rates go down, savings looks less attractive. That means you’ll either spend or invest. Both will help the economy (and the second will help you).
January 30th, 2008 at 3:29 pm
I’m watching my interest rates on my savings accounts go down the hole. Why should we have to pay for everyones messes? I find it insulting to tell you the truth.
January 30th, 2008 at 3:45 pm
Dave, it just got worse today: the Fed cut another half a percent.
February 4th, 2008 at 7:42 am
Ana, it’s a macroeconomic thing. Bernanke isn’t trying to punish you.
The stock market ended the week UP. It was irrational behavior that had it cycling strangely and Bernanke gave a big hug. No major media was on about that, were they, after all the hyperventilating?
It would be nice to make a little money on my emergency funds savings accounts, however, I care more about my wealthbuilding engine–the equity investments. You make more money as an owner (equity–stocks) than a loaner (savings, CDs, bonds, debt instruments).