The Federal Reserve?s half-point cut to a majorinterest rate Tuesday was a strong move to prevent a sluggish credit market from becoming a full-on recession, according to local economists.
“I think that it will have a near-term positive effect on credit markets,” said Peter Morici, a University of Maryland economist and former chief economist with the U.S. International Trade Commission. “It will help forestall a recession, this is a strong statement. Bernanke sees real weakness in the credit market spreading through the economy.”
The Fed cut by a half-percent the federal funds rate. The rate influences the amount of interest consumers pay for debt, such as credit cards, home equity lines of credit and auto loans.
Marylanders will benefit from the same lower rate, but may not have much to fear if the Fed?s cut doesn?t spark a market recovery, said University of Baltimore economist Richard Clinch. Continued government spending will continue to keep the regional market stable, he said.
“Maryland is, I don?t want to say recession-proof, but I don?t think will be greatly affected by the national economy,” Clinch said. “The government is still in deficit spending mode, the Defense Department is increasing its budget. We?re unlikely to be significantly impacted.”
Analysts were certain the rate would be lowered Tuesday, but many predicted a cut of only a quarter-point with a second similar cut in a few weeks. The Fed may not take further action in the near future following the bigger cut, said Grace Kim, economist at Loyola College.
“It will probably mean that the Fed is going to hold rates steady after this,” Kim said. “I think it?s a temporary measure if you?re looking at it as a fix, because it?s not affecting fundamentals. People who already maxed out their borrowing potential will not borrow more.”
