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OK, Now What?

Following Tuesday’s Fed decision many on Wall Street are wondering, now what?

As you likely know, on Tuesday the Federal Reserve reduced the federal funds rate (the interest that banks charge each other) to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October.

With the Fed's key rate now essentially zero, the central bank is moving into uncharted territory.

Rate cuts are thought to be the Fed’s most powerful weapon in the fight to stimulate the economy but you can’t get lower than zero. That leaves some investors worried that the Fed now has its hands tied.

No Bullets Left?

According to Fed Chairman Ben Bernanke his hands aren’t tied in the least. He’s pledging to use "all available tools" to fight the worst financial crisis since the 1930s. Those “other tools” include buying large quantities of mortgage-related debt and possibly buying long-term Treasury securities.

“What the Fed is doing is quite aggressive, says Alice Rivlin, former Federal Reserve vice chair on Fast Money. "And now they are saying we are going to do everything we can to get banks lending and we’re going to do that by bringing down the long term interest rate."

Rivlin also tells the traders that she isn’t too concerned with inflation. “I don’t think there are too many near-term risks,” she says. “If the economy starts picking up then we need to worry about over-heating but I don’t think we’re anywhere near that, at all.”

She also says, “I think it’s going to make things better than they would have otherwise been. But we don't know how bad it otherwise would have been."

"Success will be that inspite of an economy that is going to deteriorate further, bank lending picks up and people begin to buy things again on credit.”

What’s the bottom line? The whole point of the Fed action was to prevent the freefall.

For more of our interview with Alice Rivlin please watch the video.



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Trader disclosure: On Dec. 17th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke Owns (MCD), (MSFT); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (ENER) Call Spread; Najarian Owns (UYG) And Is Short (UYG) Calls; Finerman's Firm Owns (MSFT), (IBB); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (VNO), (FCE.A), (USO)

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