Wednesday, October 31, 2007

Federal Reserve cuts interest rates a quarter-point to 4.5 percent



11 comments:

BUY ON THE DIP said...

Fed cuts rates by a quarter point to 4.50%
Marketwatch - October 31, 2007 2:17 PM ET
WASHINGTON (MarketWatch) - The Federal Reserve gave the economy another shot Wednesday, cutting short-term interest rates by a quarter-point to bring them to the lowest level in the tenure of new Fed Chairman Ben Bernanke.

The reduction in the federal funds rate to 4.50% is meant to spur the economy through lower borrowing costs. Lower rates should also help Wall Street firms and banks.

While growth has been solid, "the pace of economic expansion will likely slow in the near-term, partly reflecting the intensification of the housing correction," the Federal Open Market Committee said in a statement.

The rate cut, along with other moves by the Fed, "should help forestall some of the adverse effects on the broader economy" from the disruption of financial markets.

The FOMC said inflation risks remain. Core inflation readings have improved modestly, "but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation," the FOMC said.

The vote was 9-1, with Kansas City Fed President Thomas Hoenig voting to keep rates steady.

Most analysts expected the quarter-point reduction. See full story.

It was the second cut in the federal funds lending rate in the past six weeks.

In its statement the Fed also said it was cutting the so-called discount rate, what the Fed charges banks for short-term loans, to 5%.

Though the economy grew at a 3.9% rate in the third quarter, economists are worried about growth in the fourth quarter and the first part of next year. See full story.

The Fed cut rates by a half point only six weeks ago on Sept. 18. At the time, Fed policymakers said the cut was designed "to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."

In the weeks that followed, financial markets appeared to believe the Fed would hold rates steady at their two-day meeting this week.

But a steady stream of poor economic indicators, coupled with continued financial market strains and the announcements of more than $30 billion in losses and write-downs by Wall Street brokerage firms from their holdings of sophisticated derivative products linked to subprime mortgages seemed to convince investors that another rate cut was in order.

This led economists to lock-in expectations of a rate cut because they believed the Fed would not want to upset the apple cart by not matching expectations.

At some point the Fed might have to push against market expectations, but Fed watchers saw no evidence of this in Fed speeches between meetings.

Some analysts said Bernanke gave the clearest hint of a rate cut in his speech in New York mid-month.

"The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," Bernanke said. Read text of Bernanke's speech

Although the votes at the Fed meetings had been unanimous, offering the veneer of unanimity, some nonvoting regional Fed bank presidents are thought to be wary of too many rate cuts out of a concern about the possibility of triggering inflation.

In addition, several presidents are known to be worried about the so-called "moral-hazard" issue, that the Fed is helping bail out some Wall Street players from their bad bets, thus encouraging more wasteful investments in the future.

These presidents showed their dissatisfaction in a relatively obscure way, by voting against a reduction in the Fed's discount rate in mid-September. See full story.

The voting membership of the FOMC is on a rotating basis, with five of the 12 presidents voting in any given year

Anonymous said...

do you have the half dollar pict ready just in case?

Anonymous said...

well atleast our source was right , eh...

fuck nice dip, buy it.

Anonymous said...

0.25% cut and market is down

Anonymous said...

everyone excpected .25 , we got a quarter. no "happy" suprise, market sells off.....

Anonymous said...

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74.75 +2.66 (+3.69%)

NEW HIGHS!

Deepak said...

CROX you know what it is. up 95%, still holding through earnings though.

I opened a position in BBD ahead of earnings Nov 6th.

Took a loss on Yahoo down 30%.

Anonymous said...

I am tempted to dump TGT options. I hate retail stocks. People analyze every fudging sales circular that is thrown out

Anonymous said...

botd,

you holding crox calls through earnings? thanks

Anonymous said...

we sold a few shares of

CROCS INC COM NOV 17, 2007 $ 75.000 CALL (CQJKO : OPRA)

@ $6.00

...for 159.63% gain!!!!

and still holding the CQJAB until after earnings.

a bit scary but we have faith in the international quarter of love!

Anonymous said...

we hate our TGT and WFC calls too....fucking losers!

so many other "good" places to put our money....shit we could have bought just about anything else and been better off....who needs diversification anyways...fuck banks and retail.

..... we are going back to the DIPfolio staples....BRAZIL, TECH, AGRICULTURE, OIL, GAS, CHEMICALS, etc.....