Fed lowers interest rates to 3%; stock markets rally

Stock markets rallied today after the Federal Reserve cut interest rates for the second time in 8 days. Will today's 50 basis-point cut finally get people to stop complaining about Chairman Ben Bernanke? Probably not.

Nonetheless, the policy makers appear to be responding to criticism from pundits of all political stripes that they were "behind the curve" in dealing with the problems in the economy. The two recent cuts are the fastest easing of monetary policy since 1990, according to Bloomberg News.

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Federal Open Market Committee said in a statement. "Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets....The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

Dallas Fed President Richard Fisher voted against the cut, preferring to leave interest rates unchanged. There are signs everywhere that the economy is slowing, so the question comes up yet again about whether more rate cuts are coming or will the Fed wait for the stimulus package to kick in?

For now, though, investors are basking in the present.

In late afternoon trading, The Dow Jones industrial average rose 82.67 to 12,562.97 and the Nasdaq Composite Index jumped 6.73 to 2264.79. Financial shares, including Merrill Lynch & Co. (NYSE: MER), Morgan Stanley (NYSE: MS) and JPMorgan Chase & Co. (NYSE: JPM), rallied. At least one veteran investor thinks the sector has been beaten up enough.

David Dreman of Dreman Value Management LLC told Bloomberg TV that he has bought shares of Bank of America Corp. (NYSE: BAC) and Wachovia Corp. (NYSE: WB). "There was panic in the market towards the end of the year and a lot of them went down far too much," he said. "There will be a turn, and this is probably a major opportunity in financials, probably one of the best in the last 15 years.''