Whoa, Nelly! The Fed cut rates to zero—now what?! (Well, actually, the rate was cut to between zero and a quarter of a percentage point, but let’s not split hairs here.) The Federal Reserve Open Market Committee issued a statement after the meeting, saying that it “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.” They also stated that the federal interest rate will likely to remain “exceptionally low” for some time. Recognizing that the underlying problem for the U.S. economy is very weak credit lending due to untold amounts of financial waste in the system, i.e. bad mortgage debt, the Fed laid out a strategy to drive down actual borrowing costs for households and companies. This means expanded credit and direct asset purchase programs, for instance buying up securities issued by Fannie Mae and Freddie Mac and potentially purchasing longer-term Treasury securities. Where is the funding going to come from? According to experts interviewed by the Financial Times, likely, from expanding reserves and therefore the money supply. Incidentally, the dollar fell to its lowest level against the euro after the Fed cut, since the EU currency had debuted in 1999. But it looks like the credit markets’ return to liquidity will be very slow and painful. The investors are not expecting lending to recover until at least the second half of 2009, based on the current difference between Libor rate, or the London interbank offered rate that banks charge each other for three-month loans, and Treasury bill rates. Right now, it is six times wider than before the credit markets began to seize up in June 2007. As the economy worsens worldwide, in some countries, people take to the streets. In China, it’s increasingly the middle-class urban dwellers who smash cars and take over government buildings, upset over worsening working and living conditions.