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October 29th, 2008

(Update2) Fed Cuts Rate As Expected



As expected, the Federal Open Market Committee cut its target for the Federal Funds rate by 50 basis points (.50%), trimming the rate down to one percent. The Fed released a statement immediately following the rate cut explaining the reasoning behind their decision:

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

As the stock market closed today it was evident the Fed’s cut did little more this afternoon than support stocks for less than two hours. U.S. stocks slide late in the trading day, causing the Dow to slip below 9,000 once again:

The Dow Jones Industrial Average fell 74.16 points, or 0.8%, to end at 8,990.96. The S&P 500 dropped 10.42 points to 930.09. The Nasdaq Composite gained 7.74 points to 1,657.21.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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