Fed Funds Rate – How Low Will It Go?
Written by Cindy on January 16th, 2008
Do you remember when the Fed Funds rate was 8.25%? How about when the Fed Funds rate was down to 1%? It’s hard to imagine rates can swing so much from year to year. When the Fed Funds rate was heading toward the 1% mark, I really never thought it would go that low. There wasn’t much you could earn with a 1% rate.
Over a span of two years (from June 2004 to June 2006) the Federal Reserve slowly raised the Fed Funds rate from 1% to 5.25%. Now the Federal Reserve has started to reduce this rate toward the end of 2007. So what is in store for 2008? With the sub-prime lending debacle continuing to be an issue, concerns of a recession as well as concerns about inflation it’s hard to say. We may see additional rate cuts through mid 2008. In a recent economic article it said there is a 66% chance of a half-point rate cut and a 100% chance of at least a quarter-point cut at the January 29-30 meeting. How low will the Fed have to or need to go? Some predict as low as 3.50% by the middle of 2008.
To start off the New Year, it was announced that the December payroll report numbers were disappointing along with a jump in the unemployment rate from 4.7% to 5.0%. The stock market has also had its continued turmoil. Several members from the Federal Market Open Committee have concerns that the troubled housing and financial markets may continue to have a negative impact on the economy. In addition, inflation is a concern which has stretched beyond higher oil prices (which increased 69% over the past year). At yearend 2007 the Dow Jones ended the year above 13,000 but has been declining since then. It seems the market just rolls with the punches. When there is good news the market moves up, but when there is bad news the market moves down. I haven’t heard a whole lot of positive news lately.
I’ll provide you with an update next month and by then all the numbers should be in.
