Stocks went soaring today as a result of the Federal Reserve cutting its key interest rate from 5.25% to 4.75% and the discount rate from 5.75% to 5.25%. The move thrilled Wall Street because not only is this the first time in four years that the Federal Reserve cut its key interest rate, but the cuts were larger than most expected. Within seconds of the Fed's 2:15 p.m. ET announcement, the Dow Jones industrials had a gain of more than 220 points.
The Fed hopes that this cut will reduce the possibility of the economy sliding into a recession. "The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally," the Fed's statement on its decision said. "Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."
The federal funds rate or key interest rate is what banks charge each other for overnight loans and is the basis for everything from business loans to credit card charges. The discount rate is what the Fed charges member institutions directly for short-term loans.
-- L. Morse
Labels: Federal Reserve, interest rates, rate cut, Stocks
0 Comments:
Post a Comment
<< Home