RENEE MONTAGNE, host:
This is Morning Edition from NPR News. Good morning, I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. The Federal Reserve says it has not run out of moves to save the economy, and officials have made it clear they will use all available tools even though they have already cut interest rates to almost zero. We're going to talk this morning about what the Fed has just done and what's left to do. NPR's Jim Zarroli is covering the story from New York. Jim, good morning.
JIM ZARROLI: Good morning, Steve.
INSKEEP: Of course, this interest rate cut was expected, but not quite so large an interest rate cut.
ZARROLI: Yeah, I mean, they went even further than they were expected. The Fed has been steadily lowering the target federal funds rate, which is the main interest rate that the Fed controls, for about 15 months. Now, with this cut yesterday, the rate is as low as it's ever been, or as close to as low as it's ever been. It means that banks can now essentially borrow money from each other for almost nothing. And it's really extraordinary. And the hope, of course, is that this will, you know, eventually filter through the overall economy so it will become easier to borrow.
INSKEEP: This doesn't mean that I can get a mortgage for almost zero, but my bank is able to borrow money more cheaply. So, in theory, they might give me a better deal eventually? Is that what that means?
ZARROLI: In theory, yeah, because they set mortgage rates through a different set of standards that's set in the marketplace. It's tied to the federal funds rate, but really not - not directly.
INSKEEP: Now, we know that they stimulate the economy or pull it back by raising or lowering interest rates, but now that they've got down close to zero, what's left to do?
ZARROLI: Well that is the big problem that the Fed has right now. It is confronting - it has been cutting rates, but by virtually every measure the economy is still very weak. Now they really can't cut rates much more, which is why they also issued this remarkable statement yesterday essentially saying, you know, don't count us out. Even if this doesn't work, there's a lot more we can do. You know, we have other tools at our disposal. And that is really much more significant than the interest rate cut yesterday.
INSKEEP: OK, what are the other tools?
ZARROLI: Well, a lot of them are things that the Fed has already announced over the past few months. For instance, it says it will buy up a lot more debt from Fannie Mae and Freddie Mac that's tied to the housing industry. It will buy up a lot of securities linked to different kinds of consumer loans. And this is all a way of forcing more money into the system. And it's similar to the measures that were tried by the Japanese government in recent years.
The Fed is - it's really pulling out all the stops. It's saying, we're going to do everything we can to get the economy moving. And the government is really committing itself to printing up large amounts of money over the next few months to pay for everything it's doing.
INSKEEP: Which essentially creates inflation, which is what they want, because there's worry about deflation right now.
ZARROLI: Right. I mean, the risk is - has always been - that it's inflationary long term to print money, and the Fed is going to have to do something later to address that. But they're not concerned about that now. Inflation is just not an issue. On the contrary, we had data yesterday that basically said the core inflation rate is now zero. And when you include energy and food prices, inflation is actually - prices are actually falling. So the Fed figures, you know, let's deal with the problems that are on the plate right now and worry about inflation later.
INSKEEP: We're talking with NPR's Jim Zarroli, who's covering the economic news from New York. And Jim, I want to ask about somebody else who is creating wealth, but maybe a little more imaginary. You're covering the story of Bernard Madoff, this guy accused of what's known as a Ponzi scheme. And we're going to hear more about Ponzi schemes in a moment. But first I want to hear from you what regulators are saying now about this investigation in this case.
ZARROLI: Well, one of the big questions all along has been why Madoff seemed to attract so little scrutiny from the Securities and Exchange Commission. He was a registered investment advisor. The SEC was supposed to have oversight authority. So yesterday the SEC chairman, Christopher Cox, issued a really unusual mea culpa.
He acknowledged that the commission had serious and credible evidence that Madoff was committing fraud, but the SEC staff never passed on the information to the commission itself. He said they basically took Madoff's word for everything that - you know, that everything was OK, and didn't delve too deeply into the way his operation was run. So it's really one more black eye for the SEC, and they've had a bunch of them lately.
INSKEEP: Sorry about that $50 billion. That's what he said?
ZARROLI: That's - sort of.
INSKEEP: OK. All right, Jim, thanks very much. That's NPR's Jim Zarroli in New York. Transcript provided by NPR, Copyright NPR.
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