IN OTHER WORDS
The United States Federal Reserve is all but certain to cut interest rates in an attempt to avert a recession. The economy certainly needs a prod. Consumer spending has been weakened by rising mortgage payments, falling home values, a drop in home equity borrowing and volatility in the stock market. Job growth has also slowed significantly, with August particularly grim. Any stimulative effects of a cut, however, are likely to be temporary. Rate cuts won’t attack the proximate causes of today’s economic turmoil — widespread mortgage defaults and a credit squeeze afflicting Wall Street, both rooted in the excesses of the housing boom.
Rate cuts juice the economy through mortgage lending. But the mortgage market has seized up, and is likely to remain cramped as long as lenders are unsure about the source and extent of losses on mortgage-related investments held by banks, financial firms and hedge funds. A rate cut will not make the system more transparent. The Fed can’t revive the economy single-handedly. Political will is needed, in the near term, to ensure that hard-pressed borrowers get the help they need. In the longer run, the nation needs to move in a new economic direction. Otherwise, it will repeatedly find itself, like now, ill prepared for the next downturn. — The New York Times