Cut Taxes To Rich, Cut Interest Rate, Blame Liberals.

[SirNitram]

Link

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

What happens, I wonder, if the rate hits zero.

[J]

What happens, I wonder, if the rate hits zero.

Dollar carry trade, oil does a moonshot, economy goes to hell, and lots of other really bad things.

[Patrick Degan]

What happens, I wonder, if the rate hits zero.

Ask the Japanese. They tried the same thing when their economy went into the tank once.

[Uraniun235]

What happens, I wonder, if the rate hits zero.

bernanke shoots himself in the head in his bunker

[J]

In other Fed related news, the TAF has been increased $150 billion a month.
Bloomberg link

Fed Revs Up Lending in Latest Jolt to Credit Market (Update6)

By Scott Lanman

May 2 (Bloomberg) -- The Federal Reserve, seeking to prevent a deeper economic slowdown, took another stab at coaxing banks into lending at lower rates.

The Fed boosted its biweekly Term Auction Facility sales of cash to banks by 50 percent to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities. It also raised the amount of dollars it makes available to the European Central Bank and Swiss National Bank through swap lines to a combined $62 billion from $36 billion.

Today's actions follow a jump in banks' borrowing costs of as much as 0.38 percentage point since the Fed's March meeting that had blunted the impact of the cash injections that began in December. An index of U.S. financial stocks climbed to the highest level in three months after the announcements before surrendering the gains.

``The world is awash in liquidity, it just isn't reaching the right financial borrowers,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Today's action from the central banks is another strong dose of medicine that will help cure what ails the credit markets.''

Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. About 95 percent of outstanding student-loan securities are AAA, according to the American Securitization Forum. Democrats in Congress had pushed Chairman Ben S. Bernanke to take student-loan bonds on the central bank's balance sheet.

At this rate the Fed will be insolvent by August, they started with around $850 billion in reserves around a year ago before the crisis started, roughly half those reserves have already been commited to the ongoing TAF and TSLF programs. $150 billion a month for three months will wipe out all remaining reserves, give or take a few billion. That will be interesting, the bad kind of interesting.