Wednesday, August 29, 2007



RV Business
Tuesday, August 28, 2007

Federal Reserve policymakers meeting in early August acknowledged that they might have to take action to ease a growing credit crunch, even as they held out hope for "a return to more normal market conditions" without any intervention.

According to the Associated Press, a cut in one interest rate came 10 days later, and analysts are expecting a broader rate cut when Chairman Ben Bernanke and his Fed colleagues meet in September.

The Fed, however, didn't feel an immediate need to step in at its Aug. 7 meeting. Instead, the Fed left a key interest rate at 5.25%, where it has stood for more than a year. Policymakers left rates alone even as they acknowledged that the worsening housing slump, credit problems and turbulence on Wall Street had increased risks to the economy.

Bernanke and his central bank colleagues "expected a return to more normal market conditions," but they recognized that might not be the case, according to minutes of the closed-door meeting released today (Aug. 28).

"A further deterioration in financial conditions could not be ruled out, and to the extent such a development could have an adverse effect on growth prospects, might require a policy response," the minutes stated. The minutes didn't say what that response might entail.

"Policymakers would need to watch the situation carefully," the minutes stated.

Economists and investors believe the odds are rising that the Fed will move to lower its key interest rate by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting.

This rate, called the federal funds rate, is the interest banks charge each other on overnight loans and is the Fed main tool for influencing overall economic activity. A reduction to the funds rate would mean lower interest rates for millions of consumers and businesses.

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