The Federal Reserve has decided to finally take action to at least catch up to the markets with an inter-meeting emergency rate cut. The FOMC has announced a 75 basis point rate cut in both the Fed Funds rate and in the Discount Rate. Fed Funds are now 3.50% and the discount rate is 4%. Just about two hours ago we wondered if the FOMC would do this to come to the rescue.
"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets….. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."
The FOMC also noted that appreciable downside risks to growth remain and it will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
This is what we were hoping for. While we would have rather seen this occur during market hours, maybe looking a gift-horse in the mouth isn’t necessary. We still have the scheduled meeting on January 29 and 30 next week. This won’t fix all of the problems out there, but it’s a start.
Jon C. Ogg
January 22, 2008
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