Fed Surprises Traders with a 50 Basis Point Cut in the Fed Funds Rate!
The Federal Reserve lowered rates by 50 basis points to 4.75% to help mitigate the economic effects of a weak U.S. housing market and short-term credit crunch. The Fed also lowered the discount rate by an equal amount to 5.25%. Today’s aggressive move by the Fed demonstrates its concern over potential disruptions in the financial markets, and appears to make the statement that the Fed will do what is necessary to prevent a spillover to the overall U.S. economy. The Fed also noted that “readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and will continue to monitor inflation developments carefully.” The initial reaction in the markets included a sharp rally in Stock Index futures, with e-mini S&P 500 futures posting gains of over 30 points in the immediate wake of the Fed announcement. Metal futures also rallied, along with the Euro currency. Meanwhile, the Dollar, Japanese Yen, and 30-year Bond futures all posted steep losses.
Mike Zarembski, Senior Commodity Analyst
