The Fed can drop rates all day long and IT WON'T MATTER! Lenders are not being compensated for the risk of the unknown with a lower interest rate. They will not lend money without being compensated for the RISKS they are taking. The Fed needed to raise rates or at the very least stay still with rates. By raising or keeping rates steady the Fed would have strengthened the dollar, kept its self a viable entity and put a slowdown on inflation. But NO!, they had to do the politically expedient thing that we have all been conditioned too mean prosperity and reduce rates to help "spur" on the ailing economy. The thing is, the credit crunch is about the perceived risks of the borrowers and NOT a tight monetary system. Lenders are not being compensated for their RISKS!!! with low interest rates. Get ready for higher prices at the pump and the grocery store. The following is something to be concerned about.
"While easing borrowing constraints, the central bank has also pushed money market yields below inflation, giving consumers an incentive to spend or take on more risk in their investments to earn a return. The Fed's preferred inflation barometer, the personal consumption expenditures price index, minus food and energy, rose at a 2.2 percent annualized rate in the first quarter. Six-month Treasury bills yield 1.7 percent."
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