Why the Fed Kept Rates the Same

Today the Fed elected to keep interest rates the same and instead decided to use Fed lending to help out the markets.

Why?

First, they may need the cushion to be able to lower rates later in a worsened situation.  Second, they are preparing to see how much more they need available to negotiate bailouts or help mergers along.  Third, cutting rates has no impact if no one is borrowing money.  Fourth, Banks have already de-coupled from the Fed lending targets because of the constraint of having little cash available between them and are causing other banks and institutions to bid up overnight lending.

This is putting pressure on money markets and creating a real threat to average investors and that is why the Fed put $50 billion in the hat, to help maintain money market funds.

Everyone should pay attention to this, since it really underscores the real depth of the problem.

Copyright 2008 Michael P Arnold, MPArnold