WASHINGTON – The Federal Reserve is widely expected to cut short-term rates today to boost investor confidence as the markets continue to gyrate.
“It wouldn’t surprise me if we get a 25 basis point cut or as much as 50 when they meet,” said Brian Turner director of Southwest Corporate Investment Services, a unit of Southwest Corporate FCU.
A cut in short-term rates, explained Turner, would ease the strain on the financial markets by adding liquidity. Short-term rates, as targeted by the Federal Reserve, help determine rates on such credit union products as adjustable-rate mortgages, auto loans and home equity lines of credit.
David Dickens, vice president at U.S. Central FCU, predicted a 25 BP cut “as a timely response to what they see as continued stress in the capital markets.”
The markets were in turmoil yesterday with all of the major stock indexes plunging and the overnight market, a key provider of liquidity for credit unions, spinning out of control for most of the day, with rates moving as high a 6% – despite the Fed’s target for overnight Fed Funds remaining at 2%.
“If they (the Fed’s Open Market Committee) do it, it’s to make a statement, not to lower interest rates,” said Bill Hampel, chief economist for CUNA, who said he wouldn’t be surprised to see the Fed hold steady, or cut the short-term target by as much as 50 bps.
