On Tuesday, the Fed cut a key funds rate - the interest rate that the banks charge each other - by three quarters of a point, making it 2.25%. This along with the accumulated three quarter point cut during their emergency and regular meeting in January makes it the most aggressive Fed cut since 1982.
Speculators were hoping for a full point rate cut to better boost the economy, but after their disappointment dissipated after realizing a three quarter point was substantial enough, the stock market started rallying with help from the release of two top financial firm’s (Goldman Sachs & Lehman Brothers) earnings. The Dow ended up 420 pts by end of trading day.
With the Fed's first priority, abating an economic growth standstill and fighting a major recession, inflation was still a cautionary subject as the Fed made comments stating that they realize inflation is becoming increasingly dangerous. Although inflation is a concern, the Fed is willing to do what they need to get the economy back on its feet by also lowering the discount rate (the rate at which the central banks lend out to eligible institutions) by three quarters of a point as well, making it 2.5%. This cut was preceded by a quarter percent rate cut on Sunday for the Fed’s discount window. This was a clear indication that the Fed was ready to make significant amounts of direct loans to institutions who were rocked by the Bear Stearns (BSC) debacle this past Sunday.
President Bush and the Fed (Benny and Co) believe they are doing all they can to combat a damaging recession in the US where a slumping housing market, with millions of troubled homeowners, soaring energy costs, climbing job loss claims, and rising food prices all of which are keeping them ready on their feet and busy formulating
