September 18, 2007
About That Rate Cut ...
Posted by Gordon Smith

Aside from George Bush and Britney Spears' publicist, Ben Bernanke may have the toughest job in America. Before the Fed announced the rate cut yesterday, commentators were sounding cantankerous, almost threatening, about the slim possibility that the Fed would do nothing. Most thought Bernanke would opt for a quarter-point reduction, but when news of a half-point reduction hit the wires, commentators immediately started talking about the risk of inflation.

This move has spawned immense speculation about future rate cuts, but here are the facts relating to the cut that I found most interesting: (1) only seven of 12 reserve banks requested the half-point cut in the discount rate (W$J); and (2) the dollar fell sharply, long-term Treasury-bond yields rose, and oil prices also jumped (W$J).

The most interesting mystery about the rate cut: will it lead to higher or lower long-term mortgage rates?

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