What the Fed Cut Means to You

Share
Copy

Everyday investors are reeling from the news of the global markets tumbling and the U.S. indices poor openings today.

The Federal Reserve's attempt to preempt a morning stock market slide with a rare weekend interest rate cut hasn't been enough to assuage the markets.

With all the talk of buyouts, indices and trading, it can be difficult for you to determine what you should do with your money.

JPMorgan Chase & Co.'s agreement to buy rival Bear Stearns Cos. for $236.2 million -- with the Fed taking $30 billion of shaky investments as collateral -- has forced many to tackle their personal finances.

null

"Good Morning America" financial contributor Mellody Hobson said people shouldn't panic.

"There's no question, if you're an average person with money in a bank in this country, it's fine. That money is insured. You see a sign on the front door that says FDIC insured so all deposits of $100,000 or less are covered. You have nothing to worry about," she said on "GMA" today.

"I would say times are very tough on Wall Street. This is a shocking turn of events, so I don't want to downplay it at all, but the federal government is stepping in and specifically the Federal Reserve, to do whatever is possible not to bail out a financial institution, but to bail out the U.S. economy."

Bear Stearns' difficulties would have some effect beyond Wall Street insiders if not controlled. The company may not be a bank in the way a local corner bank is, but it lends and borrows from other Wall Street giants.

Fear about the investment bank's future could set off a panic and other banks, including that local corner bank, would put the brakes on lending, resulting in fewer home loans, car loan and business loans, Hobson warned.

"If Bear Stearns had not been saved, we would have seen other financial institutions on Wall Street be in real trouble and that would have bigger implications than $30 billion," Hobson said.

"Right now we have no other recourse," Hobson said. "We can talk about other controls and regulations that will be put in place after the fact. They weren't there, and we are where we are and what we're trying to do is stave off a tsunami of other defaults."

With so many interest rate cuts in such a limited span, some wonder how much more the Federal Reserve can do to aid the economy.

"The good news is that the Fed still has room to go. There's no way to know if this rate cut will be the last one. There will probably be more to come," Hobson said. "One way to think about this, after 9/11, former Federal Reserve chairman Alan Greenspan went as low as 1 percent on interest rates. We're at 2.25 percent right now; so we have room. When Japan was really in trouble, they went to zero."

Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...