As expected, the Federal Reserve today cut its key interest rate by one-quarter point to 4.5%. Is this a pause or a hint of more cuts to come?Unlike Alan Greenspan, Chairman Ben Bernanke doesn't go for grand gestures, but as the accompanying statement indicates, policy makers are concerned about the financial markets. The statement, which had a dissent from a member that didn't want any rate cut, mentions that increased energy prices may put "renewed upward pressure on inflation," but did mention that economic growth was "solid" and that strains on financial markets had eased "somewhat on balance."
At first, the stock market didn't know what to make of the Fed's move. The Dow Jones Industrial Average bounced around in the minutes following the release of the statement. Eventually, Wall Street decided that it liked what the Fed had to say and sent the Dow Jones industrial average higher by triple digits. Maybe people were expecting more cuts to come, though that's far from a certainty.
Some pundits seemed to expect a 50-basis-point cut. The Fed has already done quite a bit. As Bloomberg News notes, "Policy makers have now lowered their target rate for overnight loans between banks by 0.75 percentage point in six weeks, the most aggressive easing since the economy was emerging from its last recession in 2001."
As I've said before, Bernanke is a believer in tough love. He doesn't want to reward people who made foolish bets on the real estate market. But Wall Street is in a downward spiral as companies, including Merrill Lynch (NYSE: MER) took gigantic write downs in the past quarter.
So should Bernanke make Wall Street clean up its own mess? Opinion is divided.
"No, these sycophants did not do the right thing," wrote one poster on the Wall Street Journal's Economics Blog. "They caved again to market pressure. Unfortunately, only time will show how they have debased the currency and unleashed inflation. Unlike the 70s, many more people will know the true cause of the misery."
For now, the economy is a mixed bag. Housing remains a mess. Corporate earnings were conflicted, as consumers bought expensive Apple (NASDAQ: AAPL)'s iPods but not cheap Domino's Pizza (NYSE: DPZ), while they face the potential of $100-per-barrel oil! How odd.
Cramer on BloggingStocks: Investors are rethinking their snap judgments 
Lions Gate Entertainment: Still waiting for cash flow
Before the bell: Stocks ready for a lower open after reaching 13-month highs
Reader Comments (Page 1 of 1)
10-31-2007 @ 5:05PM
Mort said...
Absolutely...more cuts. No "tough love" by the Fed. Give candy to a baby and there' a good chance baby will want more!
10-31-2007 @ 5:03PM
Harry said...
Looks to me like business runs the Fed. Make poor decisions and schemes, then wait for the Fed to panic and save your ass...
10-31-2007 @ 7:55PM
rich kenney said...
The negative comments to the decrease focus on the banks getting what they need or the price of oil putting upward inflation pressure. What is being overlooked is the impact on the consumer (everyday people) and the overall real estate market including the construction industry, support & ancillary business to the housing business (remodels,etc.) everything related to that business is now affected not just sub prime loans (which no question was a disgrace). The total effect has not started yet because the solvent people can hold out for awhile. However, if the industry does not turn around, the collapse will broaden tremendously. The industry which played a major part in holding up the economy until recenly would push towards a devastating recession.
10-31-2007 @ 8:02PM
Carletti said...
Well, whether it was the right or wrong move fundamentally, the Fed really must've felt it did not have any choice but to further lower rates today. Consumer confidence is declining when the height of consumer activity is only a block away. Household names like Merrill Lynch are in shambles, stories of people losing there homes still persist, a woman got sued for downloading music files illegally...etc.
My fear currently stems from these cuts being, largely, psychological maneuvers...or so it would seem. We all realize that the concrete benefits from the cuts will be realized further down the road, but given today's indicators that the economy is steady while inflationary pressure is very real, I would not attempt to steer consumer spending (and hence our economy) by manipulating the rates any further.
10-31-2007 @ 10:32PM
Suzy said...
I think he is by far more in tune than Greenspan. We have needed someone with some foresight to correct the economy for a long time. He may be just the right man. Greenspan acted to soon on his fluctuations.
11-01-2007 @ 9:15AM
Darrell said...
Feds,,Why not go to VEGAS and bail out all the loosers there,Things were great when they were making money on the way up,when you make mistakes you should pay,not be bailed out by the feds..
11-01-2007 @ 8:27AM
DAVE said...
OH COME ON IT'S ALL THE BANKS DOING WITH A LOT OF HELP FROM BIG BUILDERS , ONLY COUNTRY IN THE WORLD THAT YOU COULD GET A MORGAGE ON A PORT A JOHN WITH A OCEAN VIEW.
11-01-2007 @ 5:18PM
T. S. Evans said...
Interest rates need to be set at a fair, reasonable rate and left alone. Everything will wash out in time. This mess was created by all lenders who approved these variable rate loans without qualifying the barrower for the higher interest rate. Allowing buyers to purchase more home then they could afford in the long run. These lenders knew the rates would go up in time. Consumers should not be given an option to have a variable rate home loan. The mortgage lenders are the root of the problem in the housing market and should bear the burden. However everyone will pay the price.
11-07-2007 @ 9:14AM
R. A. N. said...
Will the Fed sit idly by while the dollar drops like a lead weight? Apparently so. My sense is that we're in for further rate cuts.
12-10-2007 @ 11:20PM
Art Nabarrette said...
let him cut if he wants to cut let him raise if he wants to raise just keep an eye on your money