Today the Federal Reserve Board cut its federal funds rate by 0.5 point reports Martin Crutsinger of the AP.
The Fed announced Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 percent to 4.75 percent. The half-point reduction was double the quarter-point move that many economists had been expecting.
Stocks soared and the 30-year Treasury Bond slumped. So is this good news or bad news?
Probably what it means is this. The Fed is taking action to ease the liquidity crisis.
The question is: what about the solvency crisis? How many financial institutions are going to be in good shape 6 months, or a year from now.
The simple answer is: we don’t know.
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