AGGRESSIVE RATE CUTS POSSIBLE - BEN BERNANKE, FED CHAIRMAN!
SPEECH SUGGESTS WEAK ECONOMIC GROWTH BIGGER THREAT THAN INFLATION!
Federal Reserve Board Chariman Ben Bernanke, speaking in Washington today, acknowledged growing concern over weak financial markets and poor employment numbers, and suggested that "substantive" cuts to interest rates may be necessary.
The "outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced," Mr. Bernanke said. "In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary."
Bernanke's comments suggest an aggressive one-half cut to the FED's short-term Federal Funds Rate, currently 4.25%, could happen at the next FED Policy Makers Meeting on January 29th. Sooner action is possible, but not considered likely.
He pointed to the recent rise in the U.S. Unemployment Rate, to 5% in December, from 4.7% the previous month, and suggested these weakened employment numbers could moderate inflation risk.
In the mean time, threats to the U.S. economy as a whole have increased. "Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets. In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008."
Lower FED interest rates will not immediately impact all mortgage borrowers, but could lower the monthly payments for those with certain types of home equity loans, consumer credit cards tied to the Prime Interest Rate, and some adjustable rate mortgages.
Read Greg Ip's article, just released, in today's online edition of The Wall Street Journal.
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