The Federal Reserve has again cut the federal funds rate, this time by .25%, in an attempt to bolster a faltering economy. Though the cut is welcome, it has left both investors and some in the banking industry a bit disappointed. The Dow Jones Industrial Average dropped almost 300 after the announcement, representing a rather odd response to the announcement of lower rates. While the equity markets and interest rates typically have a direct, inverse relationship, the markets appear to have factored in a 1/2-point drop prior to the announcement, and then adjusted from there.

Even with mortgage rates now at a 2-year low (and moving lower, in all liklihood), banks are still hesitant to loan money - what one blogger (hint: me) thinks is merely continued overreaction to poor decisions made by those same bankers during the lending and real estate boom. It seems that banks will never get it quite right - lending too much when they shouldn’t and not enough when they should.

Gregory Miller, Chief Economist at SunTrust banks, notes:

“The Fed is late, and they know it. If they had to do it all over again, I think they would have started dropping rates earlier so it could be done in a more controlled fashion and allowed the market to adjust in a less volatile fashion.”

Thanks for that Greg…if you could venture a quote about banks’ poor lending practices, that’d be swell too. Of course, you can keep on blaming the Fed if you like, but such reliance on (and whining about) the government isn’t very becoming.

Tags: banking industry, dow jones, dow jones industrial average, federal funds rate, federal reserve, interest rates, mortgage rates, real estate boom, suntrust banks

Posted in Federal Reserve, Federal Funds Rate, mortgage rates | No Comments »