Fed Likely to Cut Rates Sharply Again

Wall Street Journal (03/06/08) P. A2; Ip, Greg; Reddy, Sudeep
The Federal Reserve is likely to implement an additional interest-rate cut in a few weeks as the housing downturn and credit crunch continue to worsen, with the degree of the cut likely to be debated at a March 18 meeting of Fed policy makers. It is not likely that the Fed will consider a three-quarter-percentage-point rate cut in light of the current economic situation, unless markets or economic data show a marked degradation over the next two weeks. Securing loans is proving to be more difficult for commercial property developers and purchasers of expensive homes, and the threat of an "adverse feedback loop" increases the odds of a major recession. Federal Reserve Vice Chairman Donald Kohn warned last week that a greater-than-expected deterioration of the housing sector could lead to larger bank losses, "and lenders might further reduce credit availability."