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."
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