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Minutes ago the Federal Reserve Board cut the overnight discount rate to 2.25%. At first, this did not meet with the expectations of Wall Street traders, or perhaps their imaginations. The Dow, which was up about 300 points during morning trading as reported earlier, moved a bit lower. However, it soon recovered and is moving up again.
Where we will end up is strictly guess work but this market is not one of conviction, so I expect the retreat to continue at least to a level such that the fearful will not want to be over-weighted overnight. Nobody wants to fall victim to news headlines and many will want to lock in whatever profits they can for the day.
Lower rates mean a lower dollar, and most likely more upward pressure on gold prices, which topped $1,010 an ounce today. I am not a gold expert but I would not be surprised to see the precious metal higher going forward, given the Fed's abandonment of inflation concerns -- at least for now.
UPDATE: Dow FINAL up 420.41 points to 12,392.66 (3.51%)
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns.
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Reader Comments (Page 1 of 1)
3-18-2008 @ 5:41PM
william lindblad said...
A decent sized cut was well expected and the market reaction was geared for an upswing well before the opening bell. This was a case of knowing something is coming and the only question was how large. The pundits called for between 50 and 100 basis points and the Fed chose 75. Seems this was acceptable. As you mention though, this insures that the dollar will continue to slide. In the short term the move will be welcome by most of the government as it helps keep a positive spirit alive on the street. It's also an election year and neither major party wants to wear the "where were you" stigma.
On the other side of the coin, beside the falling dollar, we also have falling interest rates along with all of the other known ills of defaults and job loss.
Hmm! I think the politico's and the Fed should have asked AARP how many members they have on the role. This is the (large) group that keeps money in CD's and savings. They are also known spenders (when rates are good). The latest action probably took the majority of this crowd off the consumer spending list. Since I am part of this segment I can say that eating in is back in style.