If you’re still confused about what the Fed did last week to supposedly “buy the economy some time” from going into a recession, then check out this article from Kiplinger’s Online. Kiplinger’s does a good job of answering the most frequently asked questions that may be on your mind about what the Fed actually did by cutting the discount rate and what it means to the economy and to us.
Just as a warning, you’re going to see many people start getting pessimistic about the economy. Their attitude will be not if the economy goes into a recession, but WHEN it goes into a recession. I still don’t think this is true. The national deficit has slowly been declining and exports were up over the past couple of weeks. I have a hard time believing that the slumping housing market and the mortgage/credit woes are going to put our economy in a recession. Yes, the housing market is important, but it’s not the only thing that drives our economy. Plus, it has been down before, it only takes time for people to save up enough money to actually AFFORD the houses they buy. My prediction is that you’ll start to see the housing market make a turn for the better in the spring of 2008.
Did the Fed really need to do this? I don’t think so, but it kept a lot of people from jumping off of the George Washington Bridge.