Tuesday, September 18, 2007

Fed Surprises Market With A 50 Basis Point Rate Cut

Wow, color me surprised. Maybe the Fed is more worried than we thought. In a surprising move, the FOMC unanimously cut the fed funds rate by 50 bps to 4.75%.

The market surged on this news, with financials leading the way. The banks and broker index are both up +3.75% as of this post. The Dow is surging +250 points right now.

I think the Fed felt it needed to throw a lifeline to the housing/mortgage market, and if they were just going to cut again in a couple of months, why not do a full 50 bps right now?

Of course, sentiment has been terrible, and the put/call ratios have continue to soar. So you can bet that a lot of this fuel we are seeing in buying power is due to a healthy dose of short-covering. Not a fun day for the bears.

Here are some of the highlights from the FOMC release:
  • FOMC cuts fed funds by 50 bps to 4.75%
  • Fed cuts discount rate by 50 bps to 5.25%
  • Fed says inflation readings have 'improved modestly'
  • Fed says rate cut to 'forestall' harm to broader economy
  • Fed says financial conditions increase uncertainty to outlook
  • Fed says tightening of credit conditions has potential to intensify housing correction, restrain growth


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