Fed Cuts Key Interest Rate to Record Low

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CBNNews.com - WASHINGTON -- The Federal Reserve made another aggressive rate cut, Tuesday, bringing forth some of the lowest interest rates in American history.

The federal funds rate, which is used by banks to charge each other, was reduced to range from zero to 0.25 percent-- down 1 percent from the rate in effect since October.

The lower rates should help people with mortgages, car payments and other loans.

Click play for more CBN News coverage, including analysis with CBN News Financial Editor Drew Parkhill.

As colleges like Middle Tennessee State University award degrees this month graduates face grim job futures. Teresa Flenory is one of those graduates.

"If you had a degree then the job market was pretty steady and now it's just up in the air," she said.

Nearly two million jobs have been lost since the start of the recession. Some analysts predict another three million will be cut over the next two years.

"Jobs are being cut, wages are being slashed," said President-elect Barack Obama. "Credit is tight and people can't get loans."

In response, the Federal Reserve is set to cut a key interest rate to a historic low of half a percent. The Fed is also expected to announce other ways it intends to infuse cash into the nation's struggling economy.

The rate cut means the prime lending rate for home equity loans, credit cards and other consumer and small business loans would fall by a corresponding amount of a half a percent or so. This would give borrowers a little relief and perhaps encourage people and businesses to spend more.

A Psychological Move?

Some experts believe the move will be more psychological than anything, but that may be just what Americans need.

A new USA Today-Gallop Poll shows that 60 percent of Americans believe we're living in the worst economic crisis of their lifetime.

Seventy-nine percent worry the nation will fall into a depression.

While 62 percent of those polled worry they won't have enough money for retirement.

Sam Stovall is a Standard and Poor's Investment Strategist.

"I think there's an awful lot of information that is overhanging the market that's causing a little bit of sentiment pressure," he explained.

Banking On The Golden State

In California, financial problems are so great, Governor Arnold Schwarzenegger is asking more people to bank on his state. He's enticing banks to offer low-fee or free accounts to low income residents. The state will give money to banks willing to teach people how to manage their accounts.

Officials warn the government can't do everything and must limit benefits for some while trying to help the overall economy.

"Some people want more," said Rep. Nancy Pelosi, House Speaker. "I have to balance it in terms of what will grow the economy, create jobs - do what we need it to do."

Something graduates like Flenory are banking on as they enter the job market in these trying economic times.

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CBN News
Jennifer Wishon

Jennifer Wishon

CBN News

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