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Fed Makes Bold Cut in Key Rate


NPR's Jim Zarroli reports.

JIM ZARROLI: Nariman Behravesh is chief economist at the research firm Global Insight.


NARIMAN BEHRAVESH: Their biggest concern is that the problems in the credit markets and the effect on housing could begin to have bigger spill-over effects onto the rest of the economy. They don't want that to happen.

ZARROLI: Former Fed Governor Alice Rivlin says the real impact of today's half point or 50 basis point rate cut is to send the message. That message, she says, is that the Fed is watching the problem closely and is ready to take action as needed to stabilize the economy.

ALICE RIVLIN: It was exactly what I hoped they would do and I think it's the right thing to have done. It signals that they're very serious about forestalling a recession and they're acting in a strong way, it's a much stronger signal than the 25 basis points move.

ZARROLI: The cut will lower the costs of some forms of consumer borrowing such as home equity credit lines. It could also make things easier for homeowners who took out adjustable rate mortgages that become more expensive after a few years. But Edward Leamer, who directs the UCLA Anderson Forecast, says rate cuts won't solve the economy's problems by themselves as long as conditions are so uncertain.

EDWARD LEAMER: I mean the problem is the financial markets and Wall Street are having a hard time pricing those mortgage-backed securities. And homeowners, buyers, and sellers are having a hard time pricing their homes. And until there are some sensible price - market price out there for both of those, the transaction volumes are going to be very low.


ZARROLI: Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.