Will Another Rate Cut Be Enough?

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WASHINGTON - With job cuts, a credit crunch, and gas and food prices on the rise, Americans are responding by trimming their spending. So, today, the Federal Reserve once again is taking action.

But will it be enough to calm growing concerns about a possible recession?

Yet Another Rate Cut

Like a doctor in a clinic, policy makers at the Federal Reserve have been examining recent economic challenges. Today they prescribed what may or may not help the economy stay on track.

The Fed continued its rate-slashing trend by cutting the key interest rate by 3/4 a percentage point.

In January alone, the Fed cut the rate by 1.25 points - the biggest monthly reduction in 25 years.

President Bush says the government is keeping close tabs on the economy given the recent spate of bad news.

"In the long run, our economy's going to be fine. Right now, we're dealing with a difficult situation," Bush said.

The dollar is sinking and consumer confidence is slipping with falling home values and rising defaulting mortgage loans which has dried up the market for credit.

Bear Stearns

The latest victim is Wall Street's fifth largest investment bank Bear Stearns.

The government helped negotiate its sale to J.P. Morgan chase for the bargain basement price of $2 a share.

"It's the job of regulators to come together in times of financial stress and to take action that protects our capital markets," Secretary of the Treasury Henry Paulson said.

The Fed and other economic policy advisors have been working in overdrive to keep the troubled mortgage market that triggered multi-billion dollar losses from threatening the financial system.

"The Fed realized how connected Bears Stearns is throughout the rest of the market. And so if there's a freeze on assets we would have a really serious depletion of liquidity in the markets," said Susan Phillips of the George Washington University School of Business.

And that has some market watchers wondering which banks, like Bear Stearns, may be next.

"It's a very tragic occurrence but I think it's just the beginning," Bear Stearns employee Stephen Raphael

Not only has people on Wall Street concerned, but those on Main Street too.

Investment advisor Jesse Brown said, "The biggest mistake people make is operating out of fear as opposed to thoughtful investment process."

Even though the Fed has worked aggressively to ease those concerns from spreading, it's still unclear just how much the Fed's actions will help to keep the U.S. economy and the global financial system in check.

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CBN News
John Jessup

John Jessup

CBN News Washington Correspondent

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