The Fed today cut rates by .75% of 75 basis points in a bid to shore up the economy. No doubt, Bernanke is hoping the cut will drop rates on mortgages, eliminating some of the reset pain, as well as reinvigorate a dying consumer. The problem is, the rates cuts penalize those of us who have been responsible and who have assets in cash or cash equivalent securities.
As rates fall, the rates that banks pay out on savings, cds, and othe cash equivalent securities drops. With the stock market faltering, cash equivalents appear to be the only safe place to stash your money. Rates on these investments have been dropping since the first 50 basis point rate cut in September. After a high of 6% on some savings accounts and short term CDs, you'll be lucky to get over 5% shortly.
It's true that lower rates my help mortgage holders whose mortgages are about to reset. Rates on the 10 year bond have fallen. But once again, its responsible depositors who are subsidizing people who took out risky, and ill-considered mortgages.
Related Articles:
Parsing the Fed - June 28, 2007 by Mike Poli - Jul 02, 2007
Bernanke: Housing Correction May Persist; Inflation Still a Concern by Sam Cass - Jul 18, 2007
Wall Street Down but Not Out by Sam Cass - Aug 10, 2007
BlackRock's Larry Fink Things Fed Would be Foolish to Cut Rates by Sam Cass - Sep 07, 2007
What the Fed Rate Cut Won't Help by David Walsh - Sep 18, 2007
Unintended Consequences of the US Rate Cut by Sam Cass - Sep 19, 2007
Long time bull Dan Sullivan 100% in Cash and Cash Equivalents by Sam Cass - Jan 18, 2008.
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