Fed trims another 50 bp
WASHINGTON - In a Federal Open Market Meeting Nov. 6, the Fed cut another 50 basis points off the target for the federal funds rate to 2%. Not only is this number a 40-year low, but it also drops the rate below the rate of inflation. The Federal Reserve Board also approved a 50 point reduction in the discount rate to 1.5%. The FOMC blamed heightened uncertainty and concerns about a deterioration in business conditions. "This cut is a lot more psychological than anything else, to be honest," NAFCU Economist Jeff Taylor commented. Rate cuts typically are not felt for nine months to a year afterwards, he explained, and by then, the economy should be in a position for the Fed to be raising the rates again. Taylor said he doubts the Fed will drop the rates below 2%. "In my personal opinion, that's where it should stop," he said, adding that any more will not achieve much. CUNA economists said this was no surprise considering the current condition of the economy and noted the CUNA/Consumer Federation of America holiday spending study indicated a slowdown in spending, though not as much as anticipated. "Credit union members want to hold large, precautionary savings balances in an easily accessible savings vehicle, providing a measure of comfort in these uncertain times," said CUNA Senior Economist Steve Rick. He expects share certificate balances to decline over the next year, similar to what happened in 1993, the last time the Fed abruptly cut interest rates.