New Article From HSH: “The 1% Solution?”by Tim Manni
HSH’s latest featured article, “The 1% Solution?,” reports on the latest action by the Federal Reserve and its influence on consumers and the market. As most of you know, the Fed cuts its target for the Fed Funds rate to 1% yesterday:
The Fed’s overnight target rate for the cost of interbank lending of reserves is just that: a target. The actual cost of the money fluctuates both above and below that number as demands for those funds between banks waxes and wanes. These increases and decreases reflect stresses in the marketplace.
In the days leading up to the latest move, some observers wondered what a lower Fed Funds rate might accomplish, if anything. In today’s market, it is the availability of money which is causing trouble for many kinds of borrowers, not necessarily the price of money. One thing a lower input cost of capital can do, however, is to enhance a lender’s per-loan profitability, and thereby enhance his willingness to continue to lend funds at all. In this way, a lower Fed Funds rate can be important, even if borrowers see little direct benefit in terms of price.
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