From the following article I need help answering the following questions 1)Issue
ID: 1223477 • Letter: F
Question
From the following article I need help answering the following questions
1)Issue
2) Who is this legislation going to hurt?
3) Who is this legislation going to help?
4) This is what I believe should be done. (Next I would like you to add any of your own comments as to what group you favor and why.) There is no wrong and right with your opinion as long as it is well founded. I will be looking more for your reasoning in 1) and 2) than your opinion in 3) than what you say in 4) However, I do believe that every student who comes out of our class should have his or her very own opinion and not mine. That is why we are promoting our current event analysis so you will learn how to examine a current event and find what is it affecting and who it is hurting or helping so you can learn how to read articles and come up with your very own opinions and not accept the opinions of others. Finding your own opinion is an important life skill
Here are the points: Part 1) 3 points. Part 2) 3 points Part 3) 3 points and Part 4) 1 point for your opinion or 10 points in total. I hope this helps you understand how I would grade your current event assignments. Dr. Steve
Fed Interest Rate Cut Seen This Week
By JEANNINE AVERSA,
AP
Posted: 2007-09-16 12:08:17
WASHINGTON (AP) - For the first time in more than four years, the Federal Reserve appears ready to lower interest rates to prevent a housing meltdown and a painful credit crunch from driving the economy into a recession.
A rate cut would affect millions of borrowers, with the intention of getting them to spend and invest more, which would revitalize the economy.
In one of their most important and anxiously awaited decisions, Fed Chairman Ben Bernanke and his central bank colleagues meet Tuesday to determine their next move on interest rates. Those policymakers are widely expected to cut an important rate, now at 5.25 percent, by at least one-quarter of percentage point. Some analysts predict a bolder step, a half-point reduction.
If the Fed drops the rate, then the prime lending rate that commercial banks charge many individuals and businesses would fall by a corresponding amount. It now is at 8.25 percent.
"It's no longer a debate over whether they will ease but by how much," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is soft and getting softer," and the Fed has come under economic and political pressure to act.
Should the Fed go with a quarter-point cut, analysts expect policymakers will lower the rate again in October and in December, their final meeting of the year.
Fed action would mean that borrowers who can obtain credit would see rates drop on a variety of loans. It would become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills.
Also, it should help some homeowners whose adjustable-rate mortgages reset in the fall.
"Borrowers facing a rate reset Oct. 1 might see their ARM rates adjust to 6.7 percent, for example, rather than the 7.5 percent that a borrower whose loan adjusted back on July 1 experienced," said Greg McBride, senior financial analyst for Bankrate.com. "Still a big increase, but not the knockout punch it could have been," he said.
Less immediate would be relief for the country's economic health. An expected series of rate decreases could take three months to nine month before rippling through the economy and bolstering activity.
"It's like taking an antibiotic. After you take the first dose, you don't feel immediately better. But after a series of dosages accumulate, there will be a more positive effect," explained Stuart Hoffman, chief economist at PNC Financial Services Group.
Over the short term, a rate cut would provide an important psychological boost. It could make investors, businesses and others less inclined to clamp down or make drastic changes in their behavior that would hurt the economy.
Fears that the deepening housing slump and a spreading credit crisis could short-circuit the six-year-old economic expansion have shaken Wall Street over the past few months. Stocks have swung wildly, with sharp drops reflecting investors' bouts of panic.
A recent government report showing that the economy lost jobs for the first time in four years delivered a fresh jolt. The biggest fear is that individuals and businesses will cut back on spending, throwing the economy into a tailspin.
By Zandi's odds, there now is a 40 percent chance the economy will fall into a recession - the highest probability since the last recession, in 2001. Just two months earlier, Zandi believed there was only a 12 percent chance.
So far, though, consumers have not cracked. Retail sales rose a modest 0.3 percent in August, after a 0.5 percent gain in July, the government reported Friday.
Problems have been most pronounced in housing.
But, Fed Governor Frederic Mishkin said recently, "economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and businesses spending."
He added, "That scenario cannot, in my view, be ruled out, and I believe it poses an important downside risk to economic activity."
Analysts expect the economy will slow to a rate of about 2 percent in the current quarter, from July through September. That would be just half the rate of the three previous months. Growth in the final three months of this year could turn out even weaker.
The employment climate is starting to deteriorate. Employers eliminated 4,000 jobs in August, intensifying calls by politicians and others for the Fed to cut rates. The unemployment rate, now at 4.6 percent, is expected to climb close to 5 percent by the year's end.
The weakness in employment was troubling because job and wage growth have served as shock absorbers for people coping with the housing slump.
After a five-year boom, the housing market went bust more than a year ago. Higher interest rates and weaker home values clobbered homeowners, particularly "subprime" borrowers with spotty credit histories or low incomes. Foreclosures set records and late payments spiked. Lenders were forced out of business. Hedge funds and other investors in subprime-related mortgage securities took a huge financial hit.
A credit crisis ensued, spreading beyond the subprime market to more creditworthy borrowers.
"If current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed Governor Randall Kroszner said in a recent speech.
The situation for the Fed, though, could become even more complicated. Oil prices recently surged past $80 a barrel, a record. Persistent increases could rekindle inflation worries.
Much has changed since the Fed's previous meeting on Aug. 7, when it held its key rate steady. But days later, the Fed was forced to begin pumping billions of dollars into the financial system to stem worsening credit problems and market turbulence.
Then on Aug. 17, the Fed slashed its lending rate to banks and issued a more grim assessment of the economic climate.
Bernanke repeatedly has pledged in recent weeks to "act as needed" to keep the housing and credit mess from sinking the economy.
"It seemed like the Fed was behind the curve. Now it is going to bring out the big gun" on Tuesday and cut its most important rate, the federal funds rate, said Scott Anderson, economist at Wells Fargo.
The last time the funds rate, which is the interest that banks charge each other, was lowered was in late June 2003. The rate is the Fed's main tool for influencing the economy.
"The cut is really needed to improve the cost and availability of credit for the average business and consumer," he said.
On the Net:
Federal Reserve: http://www.federalreserve.gov/
Explanation / Answer
The economy is faced with the serious dual challenge of housing meltdown and an unprecedented credit crunch. The federal Funds rate, the Fed's main tool for influencing the economy is being considered for a cut to improve the cost and availability of credit for the average business and consumer. The rate cut it is believed would affect millions of borrowers, with the intention of getting them to spend and invest more, which would revitalize the economy. Speculation, However, persists with respect to the percentage points by which the rate would be cut and process and time spacing of the cuts is being mooted. Further, the unemployment rate, now at 4.6 percent, is expected to climb close to 5 percent by the year's end. If the legislation for rate cut is passed.
2. Who is this legislation going to hurt?
If the existing higher interest rates are allowed to persist per se the demand for homes could weaken further, with possible implications for the broader economy.
It is said that the economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and businesses spending. The legislation, if it does not attempt a rate cut, would trigger a downside risk to economic activity. Analysts expect the economy will slow to a rate of about 2 percent in the current quarter, from July through September. The employment climate would deteriorate further. Employers eliminated 4,000 jobs in August, intensifying calls by politicians and others for the Fed to cut rates. The "subprime" borrowers with spotty credit histories or low incomes would be severely affected.Foreclosures and late payments would only tread a destructive path. Lenders would further be forced out of business. A credit crisis ensued, spreading beyond the subprime market to more creditworthy borrowers.Known that the Oil prices recently surged past $80 a barrel, which was a record inflation would be another adversely affected macroeconomic indicator.
3. Who is this legislation going to help?
Fed action would mean that borrowers who can obtain credit would see rates drop on a variety of loans. It would become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills. Also, it should help some homeowners whose adjustable-rate mortgages reset in the fall. Less immediate would be relief for the country's economic health. An expected series of rate decreases could take three months to nine month before rippling through the economy and bolstering activity. It would boost the employment rates in the country which together with a wage increase is a shock absorber for people coping with the housing slump. A rate cut would provide an important psychological boost. It could make investors, businesses and others less inclined to clamp down or make drastic changes in their behavior that would hurt the economy.
4. This is what I believe should be done.
I have a firm opinion that the legislation to affect the Fed rate cut is quintessential for the recovery and growth of the economy otherwise crippled by the dual challenge of housing meltdown and an unprecedented credit crunch aggravated by the higher Fed rates and Prime lending rates in the country. An easing of these rates would channelize funds to the households and businesses and lend liquidity to the market. This would serve as a medication to the otherwise ailing macroeconomic system.
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