The Fed makes historic move

The Fed made a historic and agressive move on Tuesday, when it cut the federal funds rate from 1% to a range of 0% to 0.25%. The federal funds rate is the rate banks charge one another for overnight loans.

What this means for the consumer is that loans based on the prime rate, such as car loans, credit cards, and student loans, should also follow a similar path, making it more attractive for consumers to borrow. Despite the low rates, however, many banks are still struggling financially and are being highly selective on lending to household consumers and smaller businesses.

The Federal Reserve is determined to improve the U.S. economic outlook for 2009. Having already drastically cut interest rates, the Fed will deploy strategies, such as aggressive lending and the purchasing of long-term Teasury bonds. These tactics should help to ultimately bring down the borrowing costs to consumers and businesses.

On a positive note, the Bureau of Labor Statistics announced on Tuesday that inflation fell for the month of November, with consumer prices falling 1.7%. This is the second straight month with a decline in inflation.

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