This Just In . . .

The Federal Reserve cut its key short-term interest rate by 75 basis points, or 0.75%, today, January 22, from 4.25% to 3.50%. This action put the rate, the so-called "federal funds" rate, at its lowest since September 2005, nearly two-and-a-half years ago. Since the rate of inflation over the latest 12 months was higher than that, at 4.1% measured by the consumer price index, the Federal Reserve moved its "real", inflation-adjusted, interest rate into negative territory, so it is now virtually giving money away.

This negative interest rate is deliberate, to try to prevent the current housing, credit and stock market turmoil from spreading across the economy. Now, as we are learning, "spreading across the economy" means more than just the United States, but many countries around the world. My colleague at Haver Analytics, Louise Curley, showed this clearly today in her commentary about the rate move on http://www.haver.com/. Stock markets around the world fell substantially over the weekend and on Monday, when US markets were closed for the Martin Luther King holiday. This is evident in one of her charts of daily percentage changes in stock prices, shown here for Turkey, South Africa, Saudi Arabia and Egypt. These countries get involved because their economies have been growing with their expanding sales of products to the US and other industrial countries. But if the US economy declines or even just slows, so will those countries' sales. Stock markets in Germany, the UK and elsewhere also fell markedly in their Monday and early Tuesday trading, highlighting the worldwide scope of what started several months ago as a local disruption in home loan performance in communities around the United States.

Within US markets, Bank of America and Wachovia Bank reported early today that their profits fell 95% and 98%, respectively, in the fourth quarter of 2007 from the year-ago quarter, as those banking institutions faced increasing volumes of loan losses that are largely related to this mortgage debacle.

The Federal Reserve's action was unexpected and came just a week ahead of a regularly scheduled meeting of its Open Market Committee, or FOMC, the group of policymakers charged with these monetary policy decisions. The move outside the regular order of business is thus seen as an emergency measure. The FOMC made only a brief summary statement announcing the rate change, but in its timing, it surely considered the major banks' earnings and those foreign stock market drops. To the extent the latter factor carried weight in the Fed's decision, this would add to the extraordinary nature of the action. The Fed has responsibility for the US and not for the well-being of other countries. But economic conditions abroad are closely intertwined with those in the US, making it impossible and even negligent for our central bank to ignore them.

Washington politicians are also trying to cobble together a fiscal stimulus plan to combat what they see as cumulating recessionary forces. Some tax relief may be enacted to support consumer spending. If and when those actions take more defined shape, we'll revisit them here. But in the meantime, this overall situation has most fundamentally to do with credit, and it seems to us that the credit-centered policy actions will be the most effective. We'll keep you informed. Meantime, just make sure your own credit is in the best possible condition!

Also in the meantime, we really do want to write to you about church growth and the impact of the "Millennial" generation on the churches. We have an article on this in process, but we had to stop today to bring you this "breaking news". We'll get back to that, though; over a longer perspective, it's important to our futures too.