Latest Fed Cut
Friday, May 2nd, 2008The Federal Reserve cut short-term interest rates for the seventh time within seven months on Wednesday, May 1, 2008. The .25% reduction brings the federal funds rate (the rate banks charge each other for overnight loans) down to 2%.
Stocks responded positively in the short run. Shortly after the rate cut was announced, the Dow Jones Industrial Average briefly topped the 13,000 mark for the first time since January. But it was short lived. The Dow dropped significantly later in the day over worries about what the Fed would do next. The index closed at 12,820.13, down 11.81 points from Tuesday’s close.
Now the big question is, is Bernanke done? Will the Fed sit tight or are more adjustments in our future.
In a related article, MarketWatch (New York) reports that the Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.
“In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures,” the Fed said in a statement.
The Fed took the move in an attempt to flood the market with supply and lower short-term lending rates, such as the London interbank offered rate, or Libor.
The U.S. central bank announced an increase, to $75 billion from $50 billion, in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility, beginning with the auction on May 5.