Federal funds rate at 0 percent?
The federal funds rate is now 1%, down from 1.5%. Now understand please, that the federal funds rate is an interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis, while consumer loans based on Wall Street Journal (WSJ) prime rate. So can we see 0% Federal funds rate sometime in a near future? After all, Japan set precedent, holding its benchmark interest rate to zero percent for 5 years - from 2001 to 2006, trying to combat a horrendous deflation and to revive economic growth. An opposite to inflation, deflation is a general decline in prices, often caused by a reduction in the supply of money or credit. That in turn, leads to all kinds of financial problems. Sounds like the United States situation right now, where banks are so afraid to lend cash, that the actual Fed funds rate for the last two weeks has been under 1%. On Tuesday, it was 0.67 percent. The 0 percent may be coming.
Fri Oct 31, 2008 03:10PM by Tony | More in Economy | Comments (0)
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