US monetary policy

[Regorium]

With the Fed's move today, US stocks shot up almost 3%. However, I am still unable to put my head around how much power the Feds have on the economy. Every media report I have read have shown that the US economy is extremely weak at the moment, from increasing foreclosures, job losses, to the weak currency and more. How can the Feds just basically tell everyone "The economy is fine!" and then people buy?

I've always thought that the market should be able to correct itself - it is obviously weak (through its own poor decisions), and it would've taken some time for it to go through the correction and fix itself. The Fed's forcing the economy to "grow" just seems so baseless to me.

Can anyone provide some insight into this move? What would've been the reprecussions of leaving this interest rate stable and allowing the markets to correct?

[Slava]

Originally Posted by Regorium

With the Fed's move today, US stocks shot up almost 3%. However, I am still unable to put my head around how much power the Feds have on the economy. Every media report I have read have shown that the US economy is extremely weak at the moment, from increasing foreclosures, job losses, to the weak currency and more. How can the Feds just basically tell everyone "The economy is fine!" and then people buy?

I've always thought that the market should be able to correct itself - it is obviously weak (through its own poor decisions), and it would've taken some time for it to go through the correction and fix itself. The Fed's forcing the economy to "grow" just seems so baseless to me.

Can anyone provide some insight into this move? What would've been the reprecussions of leaving this interest rate stable and allowing the markets to correct?

Well the move isn't the fed saying that things are fine. Its more of an acknowledgment that things are not fine. When the rates are cut then borrowing is cheaper and spending increases. When the spending increases then business is better. (This is an obvious coles notes abridged version!).

Rate increases on the other hand are used when the inflation rate gets out of hand and is deemed too high.

Also, its not really forcing the economy to grow. Its more "fertilizing" the economy so that it might grow a little faster, or at least not stop growing.

[Option84]

I don't know what the situation is with the amount people have in their savings, but the move to deter people from saving and depositing while so many owe so much money is kind of scary.

[Slava]

Originally Posted by Option84

I don't know what the situation is with the amount people have in their savings, but the move to deter people from saving and depositing while so many owe so much money is kind of scary.

It doesn't deter people from saving though...you can save in other places other than just a straight interest account. Plus, for everyone with floating rate mortgages their monthly payment was just reduced.