24/7 Wall St.

The FOMC has made its rate cut, although not quite as much as Wall Street was talking up.  Wall Street wanted a 100-basis point cut or 1 full point.  We got a 3/4-3/4 cut by 0.75% on fed funds to 2.25% and 0.75% on the discount rate cut to 2.50%.

At 2:10 PM EST ahead of the results, here were the market levels for reference:
DJIA                       12,241.64 (+269.39;+2.25%)
S&P500                1,311.81 (+35.21; +2.76%)
NASDAQ               2,232.42 (+55.41; +2.55%)
10YR-TBOND      3.393%    (+0.079)

Today’s PPI gains would have normally given some a pause in their demands that the FOMC cuts rates by a full point.  But the Fed can’t worry about the US Dollar right now, and it can’t really worry about inflation. It has to make certain that our disaster of a credit market and implosion in financial lending institutions from turning into a Resolution Trust Corp. situation.

The FOMC noted that inflationary outlook uncertainty has increased although it should moderate in teh coming quarters.  It noted "considerable stress" in the financial markets and "downside risks to growth remain."  It also noted that it will act in a timely manner to promote growth and price stability.  You can read the full statement here at the Federal Reserve site.

Fisher and Plosser were dissenting voters with the hope for less aggressive actions.

The initial reaction to the rate cut is mixed.  A 0.75% rate cut after the recent trends should be enough to appease all of us, even though Wall Street does frequently act as a spoiled child always wanting more and more.  We’ll see how the total reaction is by the end of the day before passing judgment.

Jon C. Ogg
March 18, 2008