Another Deep Rate Cut From The Fed

The Federal Reserve Open Market Committee today announced a rate cut of 75 basis points to 2-1/4 percent.

The Fed says:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

The AP says that the markets were initially displeased with the cut because they were hoping that the Fed would just ban interest altogether and start handing out free toasters with every loan:

While the cut was larger than the Fed’s normal quarter-point moves, investors were initially disappointed that the central bank did not cut rates by a full percentage point.

The Dow Jones industrial average fell 100 points within two minutes of the Fed’s mid-afternoon announcement but it then resumed climbing and was up nearly 200 points within the first half-hour after the announcement.

Fed Cuts Rates by 3/4 Percentage Point [Portfolio]
Fed Cuts by Three-Quarter Point, Suggests More Reductions Likely [Wall Street Journal]
Federal Open Market Committee Statement [FED]

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