MICHELE NORRIS, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Michele Norris.
With economic growth grinding to a halt, the Federal Reserve cut interest rates again today, this time, by half a percentage point. Just before it did, the Commerce Department reported some dismal growth figures for the end of last year. The economy grew just six-tenths of a percent in the last quarter of 2007.
As NPR's Chris Arnold reports, the Fed is hoping its aggressive move will help avoid a full-blown recession.
CHRIS ARNOLD: The U.S. economy has been laid flat on its back. In an unprecedented rapid series of cuts, the Fed has slashed rates two-and-a-quarter percentage points in recent months. That's thought by many to be good medicine, but it's not an overnight fix. Stuart Hoffman is chief economist of PNC Financial Services Group.
Mr. STUART HOFFMAN (Chief Economist, PNC Financial Services Group): Well, the Fed's medicine is sort of like an antibiotic. It actually - it accumulates in the system, it doesn't, you know, (unintelligible) the economy or the patient, so to speak, doesn't respond right away.
ARNOLD: Lower interest rates make it cheaper for companies and people to borrow money, but it takes months for loans to actually get made and, say, for companies to decide to hire more people. Hoffman says the economic stimulus package emerging in Washington would work more directly since it puts money right in people pockets.
Mr. HOFFMAN: That's more like a shot of adrenaline or a booster shot to the economy.
ARNOLD: Hoffman thinks the two together will help a lot. As far as what all this means for most people, rate cuts by the Fed affect various types of loans in different ways. Holden Lewis with Bankrate.com says some of the savings do come right away.
Mr. HOLDEN LEWIS (Bankrate.com): Variable-rate credit cards and home equity lines of credit. Both of those tend to be tied to the prime rate. And the prime rate goes up and down with the federal funds rate. So, Fed rate cuts, they do make money cheaper.
ARNOLD: The big tamale of loans for many people is their mortgage. And mortgage rates are not directly tied to the Fed funds rate, but they do tend to move together. Mortgage rates certainly reacted when the Fed started this latest round of cuts last week.
Mr. LEWIS: Mortgage rates plunged, but very briefly.
ARNOLD: Lewis says mortgage rates are usually pretty stable throughout the day. But following the rate cut, they jumped all over the place as the markets digested the news. He says take for example 30-year fixed loans.
Mr. LEWIS: If you locked a rate in the morning, you might have gotten five percent. And if you waited 'til 4:00 or 5:00 in the afternoon, it might have been five-and-three-quarters or five-and-five-eighth percent.
ARNOLD: The rate cuts won't solve the problems of all the people about to lose their homes to foreclosure these days, but lower rates eventually should provide something of a boost to the housing market and make it less of a drag on the economy. Nariman Behravesh is chief economist of Global Insight.
Mr. NARIMAN BEHRAVESH (Chief Economist, Global Insight): Anything that's a shot in the arm to housing will help. Anything that's a shot in the arm to people who might want to refinance their homes or take some equity out of their home, or buy a new home, and any of those people, again, assuming their credit's good, these rate cuts will benefit all of those people.
ARNOLD: Now, there is some concern from critics who think the Fed is being too loose with monetary policy here and is running the risk of spurring inflation. That would create an even bigger mess. But if it does nothing, the Fed risks letting the economy fall into a nasty recession. And Behravesh, like Hoffman, thinks the rate cuts combined with the stimulus package will rescue the economy.
Mr. BEHRAVESH: The combination of those two will be enough to make the difference between recession and no recession. So bottom line, yes, the Fed's right to cut rates.
ARNOLD: For its part, the Fed says it expects inflation to moderate in coming months, and it hasn't closed the door to further rate cuts.
Chris Arnold, NPR News.