The Fed lowered their lending rate to between 0 and .25% yesterday in an attempt to combat the Bush recession:
In theory, the Fed's action should reduce the cost of borrowing for consumers and businesses, since the prime rate — what banks charge their best customers — moves in tandem with the federal funds rate.
The prime rate typically influences rates for car loans, student loans, credit cards and other debt. With Tuesday's cut, the prime rate is expected to fall to 3.0 to 3.25 percent from 4 percent.
However, despite the attractive rates, banks aren't lending to most consumers and businesses. Weak financial institutions continue to hoard cash and build their balance sheets, with little appetite for risk in new loans. That's worsening the economic downturn, especially since it hurts consumers, who drive almost two-thirds of U.S. economic activity.
In a statement, the rate-setting Federal Open Market Committee said that "The outlook for economic activity has weakened further . . . the Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability."
Credit card companies, of course, will continue to charge as much as they're legally permitted, driving consumers into a ditch and accelerating mortgage foreclosures.
Isn't untrammeled capitalism fun?
