Skip to main content

Fed cuts rates in "emergency" move

The Federal Reserve has cut the fed funds rate to 3.5 percent, down three quarters of a point from its previous level of 4.25 percent. The discount rate was also lowered to 4 percent.

Here's more from Reuters:

Tuesday's rate cut, a week before Fed policy-makers convene for a regularly scheduled meeting on Jan. 29-30, was eye-popping in the context of the Fed's usual gradualist approach.

But the Fed still needs to do more, traders and analysts said.

"The market is telling the Fed that they have to ease more," said Martin Mitchell, head of government trading at Stifel Nicolaus & Co in Baltimore.

The Fed's biggest easing in the funds rate since October 1984 occurred while U.S. Treasury Secretary Henry Paulson called for a government stimulus package, which some analysts dismissed as being too small to revive a deteriorating economy.

In fact, more Wall Street analysts are predicting a U.S. recession this year. UBS became the latest firm to forecast the U.S. economy would contract in the first half of the year.

On one side of the fence, the traders and market participants who have become accustomed to easy money conditions are calling for more. Focused on the short term, and the steadily deteriorating condition of inancial markets, they cry out to be saved by central bank liquidity.

On the other side of the fence, are those who recognize the longer-term impact of these easy-money stimulus moves. In a word: inflation.

Even if it helps in the short run, easier monetary policy now would hurt the economy in the long run by weakening the dollar and boosting inflation, said Haag Sherman, managing director at Salient Partners in Houston.

"Ultimately these rate cuts will be self-defeating," Sherman said. "They are going to prove inflationary and bad for the dollar."

Additional commentary and video on the Fed move and the economy from Bloomberg; plus, more news of stocks taking it on the chin over in the Asia-Pacific region.

And if you'd like more perspective on the effectiveness of these Fed moves, please see our post on the last series of Fed rate cuts. Bob Hoye of Institutional Advisors makes some interesting points on the direction of short-term interest rates and the economy.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.