Fed Cuts to 3%

The Federal Reserve cheered investors by cutting its fed funds target rate (again) by 50 basis points to 3%, as most economists expected they would, capping an eight-day spat in which the key lending rate fell an unprecedented 1.25%. The cut was accompanied by a like cut to the discount rate, bringing it to 3.5%.

In its statement (see below), the Fed expressed hope the massive cuts might suffice to promote "modest growth," but stressed it was ready to make further cuts "in a timely manner" should downside risks play out.

Richard W. Fisher was the sole dissenting vote; Fisher would have preferred to keep the rate untouched.

Equity markets jumped strongly following the announcement; Treasury bonds and notes were down sharply.

FOMC Statement

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

Comments

[vboring:]

the Fed cuts rates by 1.25% in a little over a week and the market finds this encouraging?

sounds more like a good reason for concern to me.

unprecedented actions seem to more often lead to failure than to success.

2008 Jan 30 02:41 PM

[EffHugh:]

So long USD.. was nice knowing you. I was raised to respect and save you. Shame on me. Shame on the upper echelon of this country for confiscating the wealth of savers.

2008 Jan 30 02:42 PM

[Ryan Freund:]

Now is a good time to buy SKF again!

Ryan
freundinvesting.com

2008 Jan 30 02:50 PM

[vboring:]

yeah, funny thing about this rate cut: it prompted a general market jump, but it also prompted a jump in the price of GLD

2008 Jan 30 03:16 PM

[Solution:]

Richard Fisher must be shorting the market heavily.

2008 Jan 30 08:31 PM