Fed Cuts Funds Rate + Window By 1/4 Point

Posted by urbandigs

Tue Dec 11th, 2007 03:01 PM

A: Before everyone out there bashes Big Ben for not acting aggressive enough, lets take a step back at what the fed probably accomplished here; given the disappointment in action & in the issued statement. In my opinion, this move was the fed's way of regaining control over the tradable markets by not delivering what was hoped for, while at the same time taking some action. This makes it more likely that the ultimate recovery will be pushed back. I admire this move because it removes a level of expectation from the markets and could set up a surprise move down the road; when it may be needed more.

According to Yahoo Finance:

The Federal Reserve cut a key interest rate by one-quarter of a percentage point Tuesday, trying to keep the country out of recession.

The reduction in the federal funds rate to 4.25 percent marked the third rate cut in the past three months. Fed officials signaled that further cuts were possible if a severe downturn in housing and a crisis in mortgage lending get worse.
And here too:
Investors had been expecting policymakers would cut rates for a third straight time, though there was debate over the size of the cut. Most economists had been expecting a quarter-point cut in the benchmark federal funds rate to 4.25 percent -- but some investors were hoping for a half-point cut in the Fed's last meeting this year, and their disappointment took the market lower.

The Fed as expected also cut the discount rate. The Fed cut the rate it charges to lend directly to banks by a quarter-point to 4.75 percent. Fed officials signaled that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending worsen. Investors had sent stocks higher in recent weeks as they grew more confident in the Fed's openness to loosening its policy again.
The fed did NOTHING today that they could later be blamed on! They cut rates. They just didn't cut them as aggressively as the street hoped, and some economists had hoped. Cry me a river. I can sense a Cramer outburst coming.

The fed acknowledged the worsening housing & credit crisis. They acknowledged inflation risks. They acknowledged the weak dollar. And they disregarded the street's hope. They also told the street that they won't always give them what they want and at the same time, saved some precious ammunition for later on should it be needed to jolt the markets with an injection of confidence if things get real hairy.

This move may help HELOC rates a bit but prob won't bring lending rates any lower, since that market is more tied to credit quality & risk appetite these days.

It was a boring, disappointing, solid move. It was like an NFL team drafting a top rated left tackle with the 2nd pick in the NFL draft, to shore up their O-line for the running game and quarterback protection. Sure its not as exciting as drafting a star Quarterback or Running Back, but it will prove worthy later on. Sorry, its the best analogy I can think of given its playoff time in fantasy football.

What do you guys think of this move? I say the markets have more reason for rallies down the road with more rate cut ammunition at the fed's disposal.

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