"In the wake of the Lehman Brothers collapse Sunday, and the Federal Reserve’s decision to further expand the type of collateral eligible for investment bank loans to include equities, some in the financial markets are now clamoring for a federal-funds rate cut when the Fed meets at its regularly scheduled meeting on Tuesday. " I don’t understand why the Fed’s decision to expand the type of collateral is a reason to reduce rates? Can someone plz explain? I thought their decision means investment banks will now be able to get loans more easily from the Fed. thx.
The Fed is now allowing more risky types of investments to be put up as collateral for loans… My guess is that they would want to move the rate to show their muscle and not remain on-the-fence… Although, I’d like them to take a look at the year-over-year inflation number (5.6%!) and think twice about this decision. Even though CPI decreased this time around, for the year it will remain above the historical average. Interesting comparison to the crash of 1928 where the Fed was more focused on what was going on in the stock market/ financial markets and less on the cooling economy… As if I have any say, ha!