These are interesting economic times and the Federal Reserve is playing a more proactive role than ever before to try to stem a deep recession.
Wayne Carroll, Professor of Economics at UW-Eau Claire, says Central Bank stepping in to help bailout venerable investment firm Bear Sterns, which collapsed in a matter of days due to their exposure to the sub-prime mortgage market, could be a historic event. The move has been called "unprecedented".
While many economists applaud the Fed's action as being necessary for short-terms stability, Carroll says there are differing views of the long-term impact of the bailout: it could lead to increased inflation, increased risk-taking and a huge costs to taxpayers. He says the Savings and Loans crisis in the late 80s left many taxpayers holding the bill, to the tune of several billion dollars.
The Fed is expected to chop interest rates yet again, but don't expect it to lead to lower your interest rates overnight. Carroll says some of the money may end up spilling over to long term credit or treasury markets, but the main impact will be on short term interest rates.
Carroll has been a professor of economics for three decades and says this is easily one of the most interesting economic cycles he's witnessed.