One week before its scheduled policy meeting, The Federal Open Market Committee cut the federal funds target rate by 75 basis points today, lowering the key rate to 3.5 percent.
“This is an affirmation of our worst fears – we are not in a position that can be reversed at this point,” said Fred Crowley, senior economist and associate research professor at the University of Colorado at Colorado Springs.
During June 2006, the Fed raised the rates one time too many, he said.
“They knew the capital markets were in distress, yet they failed to do anything about it,” Crowley said. “Three days later, when the interest rates mushroomed literally overnight, they injected billions of dollars of reserves into the banking industry. But it has been nowhere near enough. Every time the Fed has gotten this aggressive with a rate cut, we’ve had a recession.”
The Pikes Peak Region, however, might have some breathing room.
The net effect of downturn will not be too bad, locally, Crowley said, because by the time the economy is in a full-blown recession, more troops will arrive.
“Fort Carson’s new brigade should moderate local impact of a national recession,” he said.
And one more bit of good news. Despite the recent loss of cyclical manufacturing jobs, Crowley said, we’ve gained T. Rowe Price, Triple A of California and Progressive Insurance.
“We’ve picked up professional, less-cyclical jobs,” he said. “We’ve shifted to businesses where employment is less sensitive to business cycle downturns. “It won’t be rosy locally, but it will not be nearly as bad as it was in ’01 and ’03,” Crowley said.