Initial Disappointment From Fed Rate Cut
The market's initial reaction to the meager 25 basis point was very disappointing. The Dow dropped nearly 200 points in a heartbeat. Most people knew that the Fed would only cut the fed funds rate by 25 basis points, but traders hoped they would cut the discount rate (the rate banks lend to each other) by 50 basis points.
This Fed continues to display their cluelessness. They will definitely have to cut more times, so just GET IT OVER WITH now. Silly Fed.
Here is the jist of their comments:
- The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4.25%. In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4.75%.
- Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time.
- Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.
- In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.