Fed opts to leave a little powder left

It is a sign of the times when a decision to cut (slash) official short term interest rates by 0,75% (taking US rates to 2.25%) comes in below market expectations! The US Fed Reserve has cut the cost of borrowing in a fresh bid to limit the downside risks for the real economy as financial turbulence threatens to dent a huge hole in prospects for the US economy in the coming months. Loads of comment available on this one from virtually every commentator. Evan Davis, the former Economics editor of the BBC was on good form on TV this morning - explaining that cuts in interest rates from the central banks is not really where the problem lies for most consumers. It is the interest rate charged on the lending and borrowing that the banks do between each other which then feeds through into the market for mortgage and other retail loans.

One of the keys to coming out of this crisis will be for banks to recapitalise and improve their own block of funding before they start lending out again. In short, the banks need to attract fresh injections of capital - perhaps from encouraging more of us to save and also from external sources such as the petro-dollars being held by the sovereign wealth funds. Confidence in the different pieces of the financial system is ebbing away - stabilising the markets is the immediate issue and the problem.

Data charts on US and UK interest rates

US_Rate_Cut_March_2008.pdf
UK_Interest_Rates.pdf

Suggested links on the US rate cut

Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Real Interest Rates [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Economies hooked on central bank stimulants? [4 Mar 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Martin Wolf on Global Shocks [10 Feb 2012]
Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Hopes and Fears 2012 [10 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Unit 2 Macro: Revision Quiz on Monetary Policy [6 Jan 2012]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Where is the UK Economy? National Output [22 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Australia lowers interest rate to 4.5% [1 Nov 2011]
Unit 2 Macro: UK suffers a weak recovery [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 2 Macro: Homework Assignment on Consumer Spending [3 Oct 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Study Note - Macroeconomic policy objectives [16 Sep 2011]
UK Macro: Risks of a Double Dip Recession [12 Sep 2011]
John Kay on the future of Economics [26 Aug 2011]
Monetary Policy Roundtable [25 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 2 Macro: Reducing Unemployment after a Recession [11 Jul 2011]
Unit 1 Micro: High price of petrol drains demand [9 Jul 2011]
A2 Macro: Consumer Spending [30 May 2011]
AS Macro Key Term: Deflation [24 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Economic Recovery [23 May 2011]
AS Macro Key Term: Recession [23 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Moving Away from Profit Max [18 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
AS Micro: What´s really behind the oil price rise? [10 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
AS Macro: Extended House Price Deflation? [5 May 2011]
AS Macro: Updated presentation on monetary policy [4 May 2011]
Macroeconomics revision - measuring Consumer Confidence [4 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
Rise in investment could kick start recovery [18 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
AS Macro Key Term: Real Disposable Income [11 Apr 2011]
AS Micro: Prices for New and Second Hand Cars [9 Apr 2011]
AS Macro Key Term: Double-Dip Recession [8 Apr 2011]
AS Macro Key Term: Jobless Recovery [8 Apr 2011]
AS Macro Key Term: Fiscal Austerity [6 Apr 2011]
Tracking the effects of the recession on GDP [5 Apr 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
AS Macro Key Term: Bubble [4 Apr 2011]
AS Macro Key Term: Fiscal Deficit [3 Apr 2011]
Focus on Spain [16 Mar 2011]
Timetric: UK Consumption as a Share of GDP [12 Mar 2011]
AS Macro Revision: Investment Spending [12 Mar 2011]
Ireland - Mass Unemployment and Shrinking GDP [10 Mar 2011]
the latest data from the MPC [8 Mar 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
Never Mind Plan B - Plan V needed for the UK Economy! [17 Feb 2011]
David Smith on Shifting Sands in the Global Economy [8 Feb 2011]
Martin Weale argues for higher interest rates now! [1 Feb 2011]
Choppy Times - An Economic Cycle Update and Resource Download [25 Jan 2011]
Economics Q&A: Will the rise in VAT harm the UK’s economic performance? [17 Jan 2011]
Economics Q&A: What economic factors affect the demand for new cars? [9 Jan 2011]
VAT and macroeconomic management [4 Jan 2011]
Economics Q&A: Why might Europe’s weaker economies struggle to grow in the next few years? [2 Jan 2011]
A seasonal introduction to Consumption, Government Spending and Aggregate Demand. [22 Dec 2010]
EU Economy: Focus on Inflation [16 Dec 2010]
CPI, RPI overshoot targets. [15 Dec 2010]
Test Cricket – better to make your debut at home [2 Dec 2010]
Extend and Enrich with EconoMax [29 Oct 2010]
Video resources on consumption and saving [7 Oct 2010]
IMF signs off on UK’s fiscal plans [27 Sep 2010]
Currency wars [27 Sep 2010]
Hysteresis in the US Economy [21 Sep 2010]
Fears rise for a double dip over the pond [25 Aug 2010]
King on the economy [11 Aug 2010]
Reasons to fear a jobless recovery [11 Aug 2010]
Consumer sentiment weakens as double dip looms [2 Aug 2010]
Where next for the UK economy? [23 Jul 2010]
Unit 2 Macro: How can supply-side policies help in a recession? [6 Jun 2010]
A selection of revision notes on monetary policy [4 Jun 2010]
Paul Krugman at the LSE [2 Jun 2010]
AS Macro Revision: Policies to Control Inflation [31 May 2010]

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