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Word Count: 403
Fed and Interest cuts One of Federal Reserve Banks roles is to lessen financial crises by acting as a lender of last resort The Fed is supposed to stand ready to provide fresh reserves to banks in need of cash This lending is done through the discount window The interest rate that the Fed charges banks for these reserves is called the discount rate This is the only rate the Fed sets The discount rate is not as important as the Fed rate because very few banks got to the Fed to borrow money The only case that a bank would go to the Fed is when its about to collapse and its the last resort Banks in need of money go to other banks with excess reserves and borrow money When Greenspan makes another rate cut he is actually lowering the Federal Fund target and this causes short term rates to fall When he makes cuts he is changing the target and signaling where monetary policy is headed The Fed has cut the rate 6 times thus far By doing so the Fed is trying to keep the US economy from tipping into recession The last rate cut was a quarter of a point that followed 5 consecutive half-point reductions At the start of the year the rate was at 65 During that time the Fed was trying to keep cool a hot economy and prevent inflation The rate is now at 375 Because of this many banks have also cut their prime lending rates in response to the Feds actions By cutting the rates the Fed is trying to pump oxygen into a flat dying economy It is said that this is the longest running expansion in US history Greenspan believes that the lags in the economy have gotten shorter in the new economy On the other hand it can also mean that the economy already has had as much
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