Watch out!
Recession: What the cut won't do
Even with the deepest rate cut in nearly 5 years from the central bank, many of the risks for the U.S. economy are beyond its reach.
By Chris Isidore, CNNMoney.com senior writer
September 18 2007: 6:18 PM EDT
NEW YORK (CNNMoney.com) -- Problems in housing, the financial markets and the first job decline in four years all played a role in the Federal Reserve making an aggressive rate cut Tuesday. But it has also raised talk about a recession - and whether the Fed is able to prevent one.
The Fed, citing the growing risk to continued economic growth, cut the benchmark
fed funds rate by half a percent Tuesday, a bigger cut than many economists had forecast. It was the biggest cut since a half-point cut in November 2002, and the first rate cut of any kind since June 2003.
It's not clear how much Federal Reserve Chairman Ben Bernanke will be able to do if the U.S. economy does start to slide toward recession.
While most economists still don't believe the nation will fall into a recession, there is general agreement that the economy now faces a greater risk than there was only a month or two ago.
But many economists also say that the Fed can do little at this point to address many of the factors threatening continued economic growth. Some economists even argue that rate cuts could make matters worse.
The mortgage market would seem to be where the Fed could have the most effect. Most directly, a rate cut will reduce the rates for adjustable rate mortgages, one type of loan that has caused the problems for lenders and subprime borrowers, those with less-than-perfect credit. (more)
http://money.cnn.com/2007/09/13/news/economy/recession_risks/index.htm?postversion=2007091818