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Fed fund rate is at 1% now. What will Fed do next? Cut it to 0%?

October 31st, 2008 · No Comments

This past Wednesday Fed cuts its benchmark interest rate target by 50 basis points to 1%.

I’m wondering what will happen next. Given the direction our economy is going, Fed probably needs to keep cutting its rate. But, it’s already 1%. How much more can they cut?

It’s actually conceivable that the Fed will cut the rate to 0% eventually — after all, our current Fed Chairman Ben Bernanke is a scholar of great depression, and in the past he had criticized the Japanese government for not aggressively cut rates to stimulate the Japanese economy during prolonged recession.

Then, what will happen after the rate goes to 0%? I don’t really want to go there, but it seems to me the government will need to print more money, which will result in inflation and massive devaluation of US currency.

How will this affect our 401K investment? I don’t have a definitive answer. But, from my perspective, I’m parking my 401K money in Money Market for the timing being until there is more clarify about what the next administration plans to do to "fix" our economy. I still believe the biggest risk now is regulatory uncertainty. I’ll play conservative until I get clear indication of our next government’s plan.

Disclaimer: This is a blog post only. I’m not here to offer any financial advice. I’m simply sharing my thoughts on the current financial market and how it might affect my own 401K investment strategy. You’re free to read my thoughts, but use your own judgement. Use the information from this blog at your own risk.

Tags: 401K and Money Market · Beat Recession

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