Orange County Register

The Federal Reserve cut a key interest rate to a range of zero or slightly more than zero and said it would take other steps to support financial markets, such as buying bonds tied to mortgages. Here’s what the experts say:

Jack Kyser, chief economist, Los Angeles County Economic Development Corp., which also tracks Orange County

“They can lower (the federal funds rate) all the way down, but you have to get banks to lend, and banks still aren’t lending very aggressively,” Kyser said. “There is a loss of confidence … until you get confidence restored things are going to be pretty dicey.” Kyser added that the Fed’s plan to buy securities backed by mortgages should accomplish more than cutting interest rates. That’s because the Fed is buying financial instruments “that people are afraid of” and that should bolster home lending, Kyser said.

Scott Anderson, senior economist, Wells Fargo

“Throwing all caution to the wind, the Fed is betting that drastic rate cuts are needed immediately in order to support consumer and business borrowing in the face of a rapidly deteriorating economy and the specter of deflationary forces afoot,” Anderson wrote in an email. He also wrote, “Such drastic measures only highlight the scale and scope of the current economic and financial crisis that still lies ahead. The Fed is now pulling nearly all its policy levers and only time will tell if it is pushing on a string, or if monetary policy still has a viable channel in which to operate. For the first time in its history the Fed has decided to establish a target range for the fed funds rate of between zero and 0.25 percent, effectively making 0.25 percent its interest rate ceiling. … (The Fed) signaled that they expect to maintain an exceptionally low fed funds rate target of some time. This signal is designed to push longer-term Treasury yields even lower, and from today’s action it seems to have worked.”

Realtor Steve Thomas, Alterra Real Estate

“The cut was absolutely inevitable, but more of a symbolic gesture at this point.  More important is their statement that they will be looking for new ways to use its power.  They are looking at purchasing
Treasuries or other kinds of debt as well, private mortgage-backed securities and commercial loans.  This is important to housing because the Fed is signaling that they are “all in” and willing to do whatever
it takes to turn the economy around.  They know that turning around the housing is crucial and it must start by instigating a bottom in the market.  They no longer can lower rates, but they will buy as many
assets as it takes to strengthen the base of our economy so that the recession does not deepen and we spiral out of control.”

Chip Hanlon, Delta Global Advisors, Inc.

“The rising price of gold shows unequivocally that the monetary gas peddle is all the way to the metal and the era of funny money has officially kicked into high gear with today’s announcement from the Federal Reserve. By promising to buy subprime mortgages, securitized credit card debt and even suggesting it might start issuing its own bonds, the Fed made it clear that it won’t just use every tool in its arsenal— but in its imagination— to ‘fix’ the housing bubble and its consequences. All those jokes people have been making lately about lining up for their own bailout are coming increasingly true. Problem is, they won’t be very funny when the bill eventually comes due.”

Read more on the Fed and housing…

• Fed will promote cheap money ‘for some time’
• The next mortgage crisis
• O.C. foreclosures again tumble
• Winners and losers by ZIP code
• 55% of SoCal home sales were foreclosures
• O.C. homebuying rises for 5th straight month
• O.C. home price down 31% in a year

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