Yet another Fed rate cut - but was it a sop to Wall Street, and will it work?
How low can they go? And will it work?
After yesterday's 0.5% Federal Reserve (Fed) rate cut, dropping benchmark interest rates to 3%, the US central bank has already clipped official loan costs faster than anyone expected.
Yet the stock market, after a sharp knee-jerk bounce on the announcement, closed down on the day. And many home owners are likely to see little benefit from the ploy.
In short, it feels like the Fed's wasting its ammo.
When castigating the US central bank last week for not waiting till the scheduled month-end meeting to make its move, I didn't foresee benchmark rates being sliced again yesterday.
Nor, apparently, did many other supposed forecasters, according to last night's Bloomberg TV (yes, it's a bit sad watching financial TV in the evening, but these are unusual times!)
Certainly, at the start of 2008, it's doubtful if there was anyone on the planet who predicted that within a month, official US rates would be slashed as low as 3%. All adding up to a 2.25% chop since the first piece of Fed action on 18 September 2007.
But sliced they have been. Businesses and households are finding credit harder to obtain, reports today's statement, and those housing woes are still worsening - more or less the same as a week ago.
Also, repeats the Fed, the job market is getting worse.
Which doesn't exactly chime with the latest ADP National Employment report that ‘non-farm' payrolls grew by a much better than expected 130,000 in January, led by the service sector and small-to-medium sized businesses.
Maybe the central bankers know more about this than we do.
Yet though their statement is mainly a rehash of last week, there is a subtle difference in phraseology. "Broader financial market conditions have continued to deteriorate" has turned into "Financial markets remain under considerable stress".
Perhaps I'm splitting hairs. Because that sounds an admission that the central bank is pushing the panic button, big time. And, goaded by Wall Street, is putting its reputation right on the line.
Fears over inflation or the collapsing value of the dollar appear almost completely to have faded from the central bank's radar screen.
Earlier credit market jitters failed to elicit much of response from Chairman Bernanke and his pals. Perhaps another really unpleasant shock is about to emerge, but it seems it's really the sorry state of stock prices that has got the Fed jumping.
If shares keep tumbling despite such rapid fire rate cuts, the Fed is soon going to run out of options.
And these sharply lower official loan costs are unlikely to bring swift relief for many financially stricken American homeowners.
The cost of products like adjustable-rate mortgages and some credit cards, which are linked to short term rates, will fall.
But fixed-interest mortgages are linked to long term bond yields, not the short term money market. And long-term bond yields don't move in step with the Fed funds rate. Far from it.
Indeed, if bond investors start to worry that the US central bank is prepared to let inflation take off, then long-term bond rates will rise, driving up the cost of fixed-rate mortgages.
After yesterday's cut, 10 and 30-year bond yields climbed sharply.
In short, the Fed has already boxed itself right into a corner. Another rate cut soon could administer a self imposed knock out.
More: Dramatic US Rate Cut
