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Federal Reserve slashes interest rates to zero

washingtonpost.com

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Re: Federal Reserve slashes interest rates to zero

#21

Post by dcftoapv »

myoon wrote: post #6
majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.

Adding some further nuance to this point:

- Many other rates in existing contracts are tied to the fed funds rate so things like existing mortgage and student loan payments may get smaller as a result of this action

- This will only work for new contracts insofar as credit risk does not materially increase (which it will in an economic downturn); banks will increase consumer spreads against the fed funds rate on a go-forward basis

Re: Federal Reserve slashes interest rates to zero

#22

Post by dharma1 »

aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

Direct purchases of shares will do little to alleviate this crisis.

The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed

Re: Federal Reserve slashes interest rates to zero

#23

Post by adeelk93 »

daddypro wrote: post #18

Does this interest rate transfer to lower mortgage rates? Is now a good time to refinance loans?

It will, but not just yet. There’s too many people trying to refi right now and supply can’t keep up with demand, so rates are higher than they should be. Give it another 3-6 months and I wouldn’t be surprised if mortgage rates fell by another 1%.

Re: Federal Reserve slashes interest rates to zero

#24

Post by mandelbrotwurst »

apta wrote: post #19
myoon wrote: post #6

Earlier quoted context omitted.

No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.

Would someone be able to negotiate a 0% loan with a bank you think?

Not unless it's bundled into some other set of services with profit for the bank attached.

Re: Federal Reserve slashes interest rates to zero

#25

Post by dcftoapv »

dharma1 wrote: post #22
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

Direct purchases of shares will do little to alleviate this crisis. The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed

Asset purchases will help to stabilize markets

- The fed became a huge driver of liquidity from from 2016-2018

- There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018

I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.

Re: Federal Reserve slashes interest rates to zero

#27

Post by mandelbrotwurst »

superkuh wrote: post #16

Not only that but they've removed the reserve requirements entirely for "thousands" of banks. There are only ~4500 commercial banks in the USA total. So that's at least a good fraction of them. These banks can now create money out of nothing as much as they want.

Do you have a source for this?

That doesn't appear to be the case at least according to the Fed's website (https://www.federalreserve.gov/monetarypolicy/reservereq.htm ), which shows the most recent change to the requirements being in January - setting it at 3% for large banks.

Re: Federal Reserve slashes interest rates to zero

#28

Post by paganel »

dcftoapv wrote: post #12

This is not going to help - It takes two years for monetary supply changes to fully propagate through the economy - Cutting rates to 0% has not been effective in Japan or Europe The fed does have a role to play here - They can provide liquidity to the market - They can serve as a backstop in a time of crisis DC needs to get their shit together - Eliminating Trump's tariffs would do more to increase long-term investme…

As someone said before, I think this is more about sending a message, as in "we're going to do whatever it takes". To be honest I don't know what the future will hold from a financial/economics point of view, but imho this is an once-in-a-century crisis.

Re: Federal Reserve slashes interest rates to zero

#29

Post by michaelyoshika »

phkahler wrote: post #10

IMHO this is a really bad idea. Let's hope they raise them slowly this time, unlike 2007-8 when they went back up quickly and triggered mayhem.

Don't know why this is downvoted. Cutting interest only benefits the wall street in the next couple months. Basically this admin only knows two things: 1, Cut interest rate 2, Cut tax And it doesn't care if the world explodes after they step down.

Re: Federal Reserve slashes interest rates to zero

#30

Post by kurthr »

majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

I think they're usually tied to the prime rate, but the spread is usually 13% or more. Prime, in turn is usually 2-3% above the fed funds. So you might find a CC with rates as low 15%!
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