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Fed Funds Heading for Zero Percent?

The question is not whether or not the U.S. Federal Reserve Bank will cut its benchmark lending rate today, but if in fact the cut will have any impact on our wounded economy.

Whether the cut is .25 or .75 points – either of which would bring the rate to an all-time low, economists fear that the benefits simply won’t trickle down the consumer. Recent rate cuts have done nothing to boost the consumer credit market because given current economic conditions, the banks that aren’t going under find that issuing consumer loans at anything else than a premium is far too risky.

A great example of this is the current market for auto loans.  Typically influenced by the prime rate, which was roughly 4%, Monday, the interest for a 48-month new car loan is 6.8%.

With Americans now hoarding their money and growing increasingly content with simply not losing their hard-earned greenbacks, the Fed may need to expend some of its “extra ammunition” in addition to its imminent rate cut to get consumers to start spending again.

So, what happens when the rate hits zero and its back to the drawing board for Big Ben and his crew? Here’s a great report written by Ben Bernanke himself on potential strategies for monetary policy when the key rate hits zero.

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