Advantage Newsletter - December 2008

ECONOMIC Barometer—What Impact Does a Lower Rate Really Have?

History was made when the Federal Reserve lowered the federal funds rate to a range of 0%-0.25% from an already low 1% on December 16. The federal funds rate is a benchmark for business and consumer loans, and this most recent slash set a new record. The primary reason for the unprecedented interest rate cut is to perpetuate economic activity and growth. This course of action will aid in stabilizing financial markets in addition to the housing sector.

A low rate, and as of recently, a record low rate, has a profound impact on business operations, consumer spending, the ebb and flow of the economy, and more. The government’s objectives for lowering rates include:

• Increasing economic activity and growth.
• Stabilizing prices, especially within the housing market.
• Driving mortgage rates down.
• Boosting consumer confidence levels, leading to increased consumer spending.
• Easing the credit crunch predicament.
• Improving conditions within the job market.

Lower rates will assist in rebuilding a robust economy in which government bodies, the financial industry, the housing sector, businesses, and consumers thrive.