The End of the Fed as We Know ItPosted Wednesday, Dec. 17, 2008, at 6:37 AM ET
The Federal Reserve threw up its hands and officially "exhausted its most fundamental tool for managing the economy," as the Washington Post puts it. The central bank cut its benchmark interest rate to as low as zero and announced that it would aggressively move to implement new programs to fight the recession. The Fed went further than many expected and cut its target for the overnight federal funds rate from 1 percent to a range of zero percent to 0.25 percent. The Wall Street Journal also points out that the discount rate, which is the interest rate that banks have to pay on loans they receive from the Fed, will drop to half a percentage point, "a level last seen in the 1940s." What does this mean? "For the foreseeable future, interest rates are nearly meaningless as a tool of economic policy," the Los Angeles Times bluntly states. The New York Times and LAT both say the announcements mean that the Fed has now officially entered a new era.