Making Rate Cuts Relevant

By Jonathan Higuera
February 1, 2008 04:48 PM

Most business reporters may never get the chance to cover the Federal Reserve, but many will face the challenge of making the Fed’s actions relevant to readers.

Over the past two weeks, most regional newspapers relied heavily on Associated Press stories to inform readers of the Fed’s January rate cuts, but some were more enterprising.

The Orange County Register weighed in with a short story – almost a graph really – on the impact of the latest federal funds rate cut on fixed mortgage rates, variable credit card rates, home equity line rates, new auto loan rates and CD returns.

“We try to be very consumer friendly in our business section,” said Mary Ann Milbourn, the business writer who put together the story for The Register. “The wires took care of the big picture of what it means for the world so we were looking for what it means to the borrower, savers and consumers.”

To make the connection between the fed’s overnight rate and the many borrowing costs and savings rates readers and consumers are interested in, The Register lined up a certified financial analyst from Bankrate.com to help estimate the impact on those particular rates.

“It’s a ‘guessestimate’,” Milbourn said. “But it gives you a ballpark figure.”

As business journalists, we know the Fed’s policies and decisions can impact variable credit card interest rates, mortgage interest rates, inflation and a host of other borrowing costs and savings rates. But because the Fed’s reductions apply only to the federal funds rate -- the rate banks charge each other for overnight loans of federal funds, which are the reserves held by banks at the Fed and not a direct correlation to the many borrowing costs and savings rates mentioned above -- readers don’t always see the connection.

“At the heart, it’s very arcane,” said Ron Carter, business editor of The Columbus Dispatch. “So you try in every way possible to tell readers what it means to them.”

Even in news meetings, Carter has to carefully explain how it works.

“Everybody wants clear yes and no answers, but it’s not like that,” he says. “The most direct explanation I use is it creates a climate for rates to decline.”

So it behooves business journalists to have a cursory understanding of the Federal Reserve. Just knowing that the Federal Reserve is a quasi-public institution created in 1913 to help prevent runs on banks and that now its primary role is to foster a sound banking system and a healthy economy through its monetary policy will help you. Think of it as the government’s banker.

It has several tools at its disposal to influence monetary policy, but one of the most important ones is setting the federal funds rate, which is the job of the Federal Open Markets Committee.

Reporters at The Dispatch used this core knowledge to help frame recent Fed actions. Rather than relying solely on the wires, a great amount of local business reporting effort went into covering the Fed’s first emergency meeting and subsequent cut of three quarters of a percent. The result: four local stories ranging from reactions from financial planners to a series of vignettes on companies, individuals, small stores and retail chains.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism