It appears the Fed is trying to restore some sort of order here. The root cause of all these problems are bad mortgages which resulted from ridiculously low rates and literally no underwritng, the Fed recognizes this. I don’t think they see the Fed Funds rate as being too high. I imagine the market will price in a pretty steep Fed Funds rate cut, I don’t think that is going to happen and in the face of a structurally weak dollar I still think it would be a mistake. IMO they need to send the message that they will not bail lenders out of the bad loans and poor practices. This latest action was not a bail out and was probably the right move.
