Fed rate and The Stock Market
NEW YORK - Stocks soared Friday after the Federal Reserve did what Wall Street was clamoring for and cut its key discount rate a half percentage point. The move quelled investors' credit worries at least for the time being and sent the Dow Jones industrials up more than 160 points.I think the Fed's move was a wise one today. Much like when in the aftermath of 9-11 a similar cut took place. What I do fear is the market has further shakiness ahead. Yesterday's news concerning Countrywide Financial Group in addition to defaults on mortgages being up, leaves me with the impression there is still danger ahead for certain financial companies. That means the Stock market is likely to drop again, or at the very least have wide fluctuations.
The Fed — which had resisted lowering rates despite weeks of market volatility, and instead added nearly $120 billion in liquidity into the banking system — cut its discount rate to 5.75 percent from 6.25 percent. The Fed acknowledged that the stock market turbulence that has pulled the Dow by hundreds of points a day was posing a risk to economic growth.
But the central bank made no mention of lowering its target for the federal funds rate, which has stood at 5.25 percent for more than a year. The fed funds rate determines the rates that banks charge each other for loans, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market won't settle down until the Fed lowers the fed funds rate target, considered a more significant benchmark.
Confidence is a key ingredient for having a healthy market. Right now there is too much uncertainty.
Linked to- Bullwinkle, Cao, The World According to Carl,