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

The Dot-Com Bubble in 1 Chart: InfoSpace

With all the recent talk of a new bubble in the making, thanks in part to the Yellen Fed's continued easy money stance, I thought it'd be instructive to revisit our previous stock market bubble - in one quick chart.

So here's what a real stock market bubble looks like. 

Here's what a bubble *really* looks like. InfoSpace in 1999-2001. $QQQ$BCORpic.twitter.com/xjsMk433H7
— David Shvartsman (@FinanceTrends) February 24, 2015
For those of you who are a little too young to recall it, this is a chart of InfoSpace at the height of the Nasdaq dot-com bubble in 1999-2001. This fallen angel soared to fantastic heights only to plummet back down to earth as the bubble, and InfoSpace's shady business plan, turned to rubble.

As detailed in our post, "Round trip stocks: Momentum booms and busts", InfoSpace rocketed from under $100 a share to over $1,300 a share in less than six months. 

In a pattern common to many parabolic shooting stars, the stock soon peaked and began a…

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL! 

Please bookmark our new web address at Financetrendsletter.com

Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner.  



Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead!

As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter. You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter). 

Stay up to date with our real-time insights and updates on Twitter.

William O'Neil Interview: How to Buy Winning Stocks

Investor's Business Daily founder and veteran stock trader, William O'Neil shared 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 withIBD:

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.

"I'd get in the c…