What is the right number for interest rates? 4%? 3%? 2%? No one knows for sure, and that's the problem. Investors are becoming like Pavlov's dogs, frothing at the mouth at the mere thought of an interest rate cut. Once the Fed accedes to their wishes, they are satisfied for a while but wind up wanting more and more cuts.As today's market action shows, these people are never going to be satisfied. The Federal Reserve lowered short-term interest rates by one-quarter point to 4.25%, the third cut since September. It reduced the discount rate -- the rate the Fed charges banks to borrow money -- by the same amount to 4.75%. "A large minority of economists had projected a half-point cut in the federal funds rate," according to the Wall Street Journal.
The Federal Open Market Committee also remains as worried as ever about the economy.
"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation," according to the statement from the FOMC. "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."
Wall Street didn't take this well. At last check, the Dow Jones industrial average was down nearly 300 points, some 2.18%, to 13,428.05. The Nasdaq Composite Index dropped 63.50, or 2.34%, while the S&P 500 slumped 37.30, or 2.46%, to 1,478.66.
Eric S. Rosengren, who heads the Federal Reserve Bank of Boston, wanted to slash the target for the federal funds rate by 50 basis points, and apparently so did many investors who continue to fret about the housing market collapse, the credit crunch and high oil prices.
In an interview with Bloomberg News, Harvard University economist Martin Feldstein said. "The Fed has to be prepared to continue cutting rates as we go into 2008.''
But for how long? Won't these rate cuts become counter-productive at some point?
Why is gold making a new high, trading at $1,118.00 per ounce?
Chasing Value: Ten stocks for 2010 -- Part 1 
Closing Bell: A six-day rally (AIG, REGN, M, MOT, PALM, RIMM)
Reader Comments (Page 1 of 1)
12-11-2007 @ 5:57PM
Ken said...
The Fed cares about Wall Street and little about Main Street.Probably by August,Americans who save money in banks will be punished and see big drops in interest income and the Fed will try to force them into the stock-market pyramid scheme.
The Federal Reserve has got to go!
12-11-2007 @ 7:36PM
tjprice48 said...
The FEDeral Reserve is the biggest fraud EVER to have been perpetrated on the American people and nation. IT IS NOT A FEDERAL AGENCY, but is made up of the elite bankers. Try Googling "FEDERAL RESERVE SCAM" or "BILDERBERGS". This is a planned action to destroy the very fabric of the US. Do NOT tell me its a conspiracy theory. WAKE UP AMERICA. We are being plundered and raped and we have not woken up, but we will when its TOO LATE!
GOD HELP OUR CHILDREN!!!!!!!!!!!!
12-11-2007 @ 8:50PM
tjprice48 said...
Ken,
They need to GO.
We have one governing board who make decisions and the president is powerless with them.
What did this country get themselves in.
Even a former president apologized that he approved the bill to create the so called "FED" and later apologized profusely for the huge mistake.
GOOGLE this under FEDERAL RESERVE SCAM
12-11-2007 @ 5:46PM
mike flores said...
Low interest is good for the borower but What about the milliuons of people living off their life savings interest? I want the peanut farmer back!
12-17-2007 @ 9:43PM
DON said...
THE ANNOUNCEMENT TIME OF A FED DECISION CREATES MARKET HAVOC. IT SHOULD BE CHANGED TO 9;30 AM WHICH WOULD ALLOW THE STOCK MARKETS A FULL TRADING DAY TO ADJUST TO IT AND WILL LESSEN THE VOLOTILITY IT CREATES.
12-16-2007 @ 10:34PM
gollyg said...
When I heard about the rate drop yesterday I also heard that the market dropped 300 points "because Wall Street wasn't wasn't happy with only a quarter point;" The news people should have added: Wall Street is never happy and always wants more.
And that's the problem exactly!
When did we turn US fiscal governance over to stock market investors? Only 15% of Americans are invested in the market yet our government caters to them as if they were the majority in charge. Today hedge fund operators have their own special tax code!
Back in the 1980s, I began to here people like Greenspan start referring to salary and wages as "inflationary' and I knew working people and the middle class were in big trouble even then! Corporate raiders began the wholesale dismantling of heavy industry and the legal theft of corporate retirement funds; still, no one said a word or lifted a finger to take action to bring charges and put stock market folks and the Fed in their place.
Why? Because, while we were sleeping, Wall Street had bought and paid for most of our elected local, state and federal officials; they had become the government!
Now we are quickly becoming a third world economy without an industrial base and unable to afford expensive gasoline and luxury imports. All that remains is for China to stop buying US Treasuries and OPEC to start accepting Euros instead of dollars for oil payments; then world power and influence will shift to the Pacific Basin. And here's the rub, it's all caused by our own Fed lowering interest rates to accommodate the greedy rich which makes investment in the US economy unproductive for other countries!
Brother, can you spare 1000 yen?
1-17-2008 @ 9:17AM
jescudero said...
I personally think that all Bush elected oficials should go with him starting with Ben Bernaki and to mention last not least the supreme court should go too, maybe they all can start in a fresh new job in Kuwait with Dick Cheney as the head official.