What the Fed's rate cut means for you: not much

A day late, but it's worth splashing the cold water of reality on stories telling you the Fed's latest rate cut will make your life better somehow.

The Federal Reserve is trying to breathe life into the economy. It is trying to make more credit available at lower rates. It is trying hard. It is not succeeding.

The interest rate story is not that Ben Bernanke (pictured) is trying. The story is credit is tight and expensive. San Francisco Fed President Janet Yellen, via Calculated Risk:

Consumer credit is costlier and harder to get: loan rates are up, loan terms are tougher, and increasing numbers of borrowers are being turned away entirely. This explains, in part, the exceptional weakness we have seen in auto sales.

Credit card interest rates are rising, not falling. This is from the Associated Press:

In coming weeks, for instance, American Express is instituting a broad-based interest rate hike of 2 to 3 percentage points on card holders. The hikes are the result of an expected rise in charge-offs, or balances written off as not being paid, the company said earlier this month.

I'm not saying the Fed isn't trying hard enough. Bernanke is pulling out all the stops. What I'm saying is the story that matters most is not today's effort. It is not today's hope. It is today's reality.

-- Peter Viles

Thoughts? Comments? E-mail story tips to Peter Viles.
Photo: Bloomberg News

Comments

[Laker]

First, if you don't have the money, credit or job, it does not matter the interest rate of the loan or a mortgage.

Also, as the fed lowered its rate, the mortgage 30 year fixed jumped...If they try to inflate the stock market, all the money will fly to stocks, and nothing will be left for bonds (traditional thinking based on history). Thus, expect rates to cross 7% pretty soon for conforming and 9% for full jumbo.

Also peter, Helicopter Ben is " is pulling out all the stops", but he has only 1% left in the ammo. Just wait for another Dow drop of 800, to get an emergency cut to 0% and then what??? Liquidity trap! search this on wiki and you'll see a great depression.

[Laker]

Here is a good link:
http://en.wikipedia.org/wiki/Liquidity_trap

Pay special attention to Austrian Critique.

In 5-10 years, we would see another paragraph about SUSA (soviet united states of america) being in a liquidity trap making a 5-10 year recession.

[syscom3]

If the fed wants to make the economy hum, then send us a check to buy a new automobile or truck thats built in the USA.

Untill people get money to lower their credit balances, or to buy big ticket items .... then nothing is going to help.

[mbob]

Ruinous economy of Weimar>Krystal Nacht>Sudetenland>Poland>France>Dunkirk>Blitz, we all know the rest.

The man on a horse is always a distinct possibility.

Poor horse.

[dclogang]

Instead of bailing out banks, give a million dollars to each household But limit it to those who didn't speculate, make under $100,000/year, filed their taxes and who don't own a home.

Gee what would I do with a million dollars? Hmm. let's see. I don't own a home... maybe I would... Oh I don't know... buy a home! : - ) Isn't that what the government wants. Why are banks getting my money to pay for McMansions.

I do hope every person that owns a house who speculated loses it for all the trouble it's caused the entire world. . the entire collapse was caused by one thing....

Lies..

[sheila]

i am a professional negotiator. it is not stupidity that is making Ben and Harry open our veins for these pigs, it is CORRUPTION. these two know damned well that they can require any sort of conditions they want on lending (like - you must use this money to lend, not to acquire other banks, or you must pass these rate drops on to consumers) yet they NEVER ask for anything in return for OUR money. why not? because they don't work for us.

they could have extracted soooooo many concessions out of the banks before handing over the keys to our houses and our first born children, but instead, they act like the banks are doing US a favor by taking our money, hoarding it, enriching themselves (again), and raising our interest rates?? WTF??

Fascism is alive and well in America. oh, and if this were socialism, Uncle Ben and Uncle Henry would be taking the assets of the banks and handing them out to us. don't get confused just because a few morons on the campaign trail are trying to keep the gravy train alive for their mercenary buddies and exploiting halfwits to get into the white house. this is the opposite of socialism.