They Did It- Half Point Rate Cut by Fed

zippyjuan · 09-18-2007, 02:37 PM

I didn't think it was necessary at this time, but the Fed has bowed to pressure and cut their rate by half a percent. Greenspan is concerned about potential inflation and this will not help if that is indeed the case. THis was a big move- they cut all their rates by higher than expected amounts.
http://my.earthlink.net/article/top?...09181275350783

Quote:

Stocks Soar After Half-Point Rate Cut
By MADLEN READ (AP Business Writer)
From Associated Press
September 18, 2007 3:14 PM EDT
NEW YORK - A jubilant Wall Street barreled higher Tuessday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half a percentage point. The Dow Jones industrial average surged more than 330 points after the Fed announced its move.

Although some investors hoped for a rate cut of that magnitude, most were betting on a smaller, quarter-point cut in the federal funds rate. The Fed responded to the spreading impact of credit market problems on the rest of the economy by saying, "the tightening of credit conditions has the potential to intensify the housing (market) correction and to restrain economic growth more generally."

The Fed cut the benchmark fed funds rate to 4.75 percent after keeping it unchanged for more than a year. It has not lowered this rate since 2003. It also reduced the discount rate - what it charges banks borrowing from its discount window - by half a percentage point to 5.25 percent. On Aug. 17, the central bank lowered the discount rate by a half-point to help keep cash moving in the U.S. banking system.

The central bank's decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market tightness, spawned by a continuum of mortgage defaults and delinquencies, would send the economy toward recession.

There was no direct signal in the Fed's statement that it would make further rate cuts. It said "some inflation risks remain" and that it will keep monitoring inflation developments. Still, it did not call inflation its "predominant policy concern" as it did after holding rates steady in early August.

"What it says to me is you had a major shift in the last couple of months from a Fed that was very concerned about inflation to one that is concerned about the health of the financial markets, the availability of liquidity," said Jerry Webman, chief economist at Oppenheimer Funds Inc.

The Dow soared 336.05, or 2.51 percent, to 13,739.47. The blue-chip index is now only about 1.9 percent below its record close of 14,000.41 reached in mid-July.

The Standard & Poor's 500 index rose 43.13, or 2.92 percent, to 1,519.78, while the Nasdaq composite index gained 70.00, or 2.71 percent, to 2,651.66.

Small-cap stocks, badly beaten during the market's summer turmoil, shot higher. The Russell 2000 index surged 30.82, or 3.97 percent, to 806.63.

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Maarchk · 09-18-2007, 03:08 PM

Thats crazy. I dont think it was the right thing to do. I think 1/4 point cut would have been fine. I think that this scary moment is not going to go away in an instant no matter how big a rate change we made. I think we more needed a small change, followed up by better policies on lending so that the mess slowly unwinds itself and works its way out. I think this is eating 20 asprin when you have a sudden sharp headache. It may fix you right now but i think it will lead to other issues later.

Kevster · 09-19-2007, 02:35 PM

Hmmm.... I'm not sure how to feel about this. I think a 1/4 point change would have been better, but I guess they wanted to have a bigger effect.

Chgoman · 09-19-2007, 09:44 PM

The markets reaction to things like this is always interesting to watch. As we all know the rate cuts have around a 6 month lag time before we start seeing the impact on the economy. In the mean time, the market goes crazy after the cut is announced and then as the bad reports keep coming in for the next few months (since he effects of the rate cut really haven't spread through the economy yet), the market panics and drops back because 'it's not working'.

yippiekiyeh · 09-21-2007, 12:42 PM

It was greed plain and simple that put us in this financial mess, and it's going to hurt to get this thing fixed :/ The .5% rate cut is just delaying the inevitable...

johnnymk · 09-22-2007, 09:01 AM

I have yet to read any commentaries by financial analysts that this was a good move.

And the global reaction has been an upward movement in gold, oil prices and a further erosion of the dollar, as predicted.

Napoleon54 · 09-22-2007, 09:10 AM

Over-reaction IMO. A fool and his money will soon be parted... regardless of what rate he gets on his loan.

brainsmile · 09-22-2007, 09:25 PM

The implications of this will be very complex

09-18-2007, 03:08 PM	#2
Maarchk Rear Admiral Upper Half Join Date: Jul 2000 Location: Where the east meets the west. Posts: 3,066	Thats crazy. I dont think it was the right thing to do. I think 1/4 point cut would have been fine. I think that this scary moment is not going to go away in an instant no matter how big a rate change we made. I think we more needed a small change, followed up by better policies on lending so that the mess slowly unwinds itself and works its way out. I think this is eating 20 asprin when you have a sudden sharp headache. It may fix you right now but i think it will lead to other issues later. __________________ "The girl is crafty like ice is cold." "I left my heart in san francisco... And my liver at Moe's Tavern." A real friend is one who listens to you as much as they talk to you.

09-19-2007, 02:35 PM	#3
Kevster Admiral Join Date: Jan 2002 Location: NorCal Posts: 6,124	Hmmm.... I'm not sure how to feel about this. I think a 1/4 point change would have been better, but I guess they wanted to have a bigger effect. __________________ I think over again My small adventures, my fears. The small ones that seemed so big, For all the vital things I had to get and to reach. And yet there is only one great thing, the only thing: To live to see the great day that dawns, And the light that fills the world. -old Inuit song

09-21-2007, 12:42 PM	#5
yippiekiyeh A Friend of a Friend Join Date: May 2001 Location: WESTSIDE! Posts: 1,673	It was greed plain and simple that put us in this financial mess, and it's going to hurt to get this thing fixed :/ The .5% rate cut is just delaying the inevitable... __________________ Distributed.Net I'm Trying this blogger thang...

09-22-2007, 09:10 AM	#7
Napoleon54 Vice Admiral Join Date: Aug 2001 Location: floating inside of a giant egg made of stars Posts: 4,861	Over-reaction IMO. A fool and his money will soon be parted... regardless of what rate he gets on his loan. __________________ There is all the difference in the world between treating people equally and attempting to make them equal. - Friedrich Hayek

09-22-2007, 09:25 PM	#8
brainsmile Chief of Naval Operations Join Date: Jun 2000 Location: woah... why is welfareloser here with me so early in the morning and more importantly why am I wearing her clothes?!? Posts: 13,754	The implications of this will be very complex __________________ ********************************** DCM #1 (Founder) "Nobody beats Vitus Gerulaitis 18 times in a row." - Vitus Gerulaitis on beating Jimmy Connors after 17 failed attempts.

09-19-2007, 09:44 PM	#4
Chgoman Lieutenant Commander Join Date: Apr 2002 Location: Mission Viejo, CA Posts: 696	The markets reaction to things like this is always interesting to watch. As we all know the rate cuts have around a 6 month lag time before we start seeing the impact on the economy. In the mean time, the market goes crazy after the cut is announced and then as the bad reports keep coming in for the next few months (since he effects of the rate cut really haven't spread through the economy yet), the market panics and drops back because 'it's not working'.

09-22-2007, 09:01 AM	#6
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	I have yet to read any commentaries by financial analysts that this was a good move. And the global reaction has been an upward movement in gold, oil prices and a further erosion of the dollar, as predicted.

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