Friday, August 17, 2007

Why the Fed Cut Rates

Today, the Federal Reserve made an interesting call. After weeks of financial turmoil caused by too many borrowers who can't make payments, and too many lenders who can't make loans, the Fed cut one of its key short term interest rates. The securities markets responded with predictable enthusiasm.

Apparently, the Fed sees prolonging malinvestment caused by unusually low interest rates as the lesser of two evils, especially when the other evil is an angry political attack on the remaining institutions of free enterprise.

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