Fed Cuts Key Rate

Futures surged Friday after the Fed said in an unscheduled announcement it was cutting its discount rate to 5.75% from 6.25%, and is prepared to take further measures in order to narrow the spread between the primary credit rate and the targeted federal funds rate. "These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially," it said. The discount rate is the interest rate regional Federal Reserve agencies charge to commercial banks and other depository institutions. The federal funds rate -- the rate at which private institutions lend to other institutions overnight -- remains at its 5.25% target. "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably," the Fed said in its announcement. In response to a recent trend of banks refusing to accept credit portfolios as collateral (full summary), the Fed remarked, "The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets," adding that, "These changes are designed to provide depositories with greater assurance about the cost and availability of funding." S&P 500 futures are up 34 points to 1459, while Dow futures surged to +232 at 13175 as of 9:17 a.m. ET.

Sources: Press release I, II, MarketWatch
Commentary: Buffett Blames Lenders, Not the Fed • Waiting For 'Calamity' to Justify an Interest-Rate Cut: Has That Time Come? • A Stealth Fed Rate Cut? • Now's The Time For A Fed Rate Cut
Stocks/ETFs to watch: DIA, SPY, AGG

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Comments

[Jim Glazen:]

Stupid sheeple buying the first rate cut. Market always follows interest rates down. The Fed is lowering for a reason. It's because the economy is imploding.

Enjoy!

2007 Aug 17 11:19 AM

[Robert DiAl...:]

Sure is a wake up call for me. I will not panic but I will be more cautious. Protect profits and not get too carried away.

2007 Aug 17 04:58 PM