Washington wanted to show America and the world that it could act quickly and decisively in the face of a potential panic. And it seems to have succeeded — one hopes more than temporarily — in stabilizing the American markets and reassuring the foreign markets.
Fed chairman Ben Bernanke arrived at his office early Monday morning and by late afternoon had engineered a record one-day rate cut, down three-quarters of a percentage point to 3.5 percent. It was indeed dramatic, as intended.
The economic point of the cut is to make it easier to lower interest rates as a whole, making it easier for consumers and businesses to borrow money. Another point was to establish that Washington was not dithering in indecision.
The following day President Bush met his Treasury secretary and the House Democratic and Republican leaders. They reached broad agreement on the much discussed $150 billion stimulus package.
Anxious to demonstrate decisiveness and efficiency as well, the House leaders promised to act quickly and Senate leader Harry Reid promised likewise as soon as the House sent the package over. This show of unity and comity is meant to be reassuring, but a cynic might think they’ve foregone their usual bickering because they’re running scared.
The Fed still has some arrows in its quiver, and it’s already hinted at another rate cut next week. Some Fed watchers see the rate dropping to 2.5 percent this spring and perhaps 2 percent by yearend but at that rate it’s pretty much out of options.
The stimulus package is probably Congress’ only shot. It’s an election year and if the stimulus doesn’t work, the fallback options — public works programs for the liberals, investment incentives for the conservatives — will have to wait for the next Congress and the new president.
The only real solution to a recession, if this be a recession, might be to simply tough it out. It’s bound to end. They always have.