Feds Cut Rates again, Payday Loans Help while we Wait for Economy

While we wait for the economy to come back, payday loans can help. With the recession continuing to cripple the financial market, the Federal Reserve is prepared to cut interest rates to an all-time low in a desperate attempt to stimulate the weakened economy and put extra cash into the American citizen’s pockets.

What do Government reports say?

According to government reports released Tuesday, consumer prices fell to a record low in the month of November, while home building plunged the most in a quarter-century. The Commerce Department reported an 18.9 percent drop in new home construction in November, the largest drop since March of 1984, while the Labor Department said consumer prices sank by 1.7 percent. The auto industry reported a 2.8 percent fall in auto sales. Auto makers reported that November was their worst sales month in more than 26 years.

Why is the Fed lowering rates?

While lower consumer prices might seem like a good thing, it does have an overall negative effect on the economy. Lower prices result in less profit for companies, causing companies to cut back on production and jobs. The Fed hopes to combat this negative effect by lowering rates.

Many economists predict the Fed will cut the funds rate in half, lowering it to just 0.50 percent. A few others think the Fed could lower rates by an astounding three-quarters percentage point or more. If that larger cut occurs, it would be the lowest on record since 1954. With the Fed’s key rate dropping ever closer to zero, the central bank is moving into uncharted territory.

According to Richard Yamarone, an economist at Argus Research, “The message is simply the Fed stands ready to do everything in its power to stop the economy’s free fall.”

If that’s not enough, thankfully we have payday loans.

By lowering rates, the goal is to increase consumer spending on larger purchases that require financing, such as homes and automobiles. However, this goal is up against two large obstacles: people are worried about a gloomy job forecast, and banks are reluctant to lend money to consumers.

2 million lost jobs.

The gloomy job forecast is a reality as the economy has shed nearly 2 million jobs, since the start of the recession, and analysts predict another 3 million more jobs will be lost between now and the spring of 2010. In November alone, employers slashed 533,000 jobs driving unemployment rates up to 6.7 percent, a 15-year high. The Labor Department reported that jobless claims are at the highest level in 26 years. With less income, more families are having to turn to payday loans for help.

What else can be done?

Since the Fed previously slashed rates, it appears to have been ineffective in stabilizing the economy. In response, President-elect Barack Obama said Tuesday the Fed is “running out of the traditional ammunition” to fight the recession and that it was critical for other branches government to “step up.” Obama, whose economic team is meeting Tuesday, is working on a “bold agenda” to spur an economic recovery.

The Federal Reserve’s decision to potentially lower interest rates has had a positive affect on Wall Street, as on Tuesday stocks rose more than 1 percent, and the Dow Jones industrials gained about 90 points in afternoon trading. Let’s hope this helps Americans struggling to find extra cash. The Fed’s official decision is due Tuesday at 2:15 p.m. ET.

Breaking news:

The central bank on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. The Fed’s move had a positive impact on Wall Street as the Dow Jones industrial average closed up just under 360. Remember, you can use payday loans, if the Fed’s move did not have a positive impact on your finances yet.