Posted By RichC on October 29, 2008
As with a number of U.S. financial disasters, October is recognized on Wall Street as a trying month. This year is no exception although the signals were pretty clear well before October. While taking a look the financial markets this Wednesday afternoon, the Federal Reserves did the expected in cutting the short-term interest rate by one-half percentage point to one-percent. They expressed continued concern of the ongoing financial crisis in both the financial markets and credit markets. The additional move down for short-term rates falls on the heels of several weeks of negative moves down on Wall Street followed by an impressive “one-day” stock market rally on Tuesday; it was the second largest point gain for the DJIA in history of 889.35 points, or 10.88 percent closing at 9,065.12. Wednesday is much more subdued as sidelined money waits for an all clear signal, which could around the corner or well off into next year?
Rate cuts are traditionally the key tool the Fed uses to stimulate the U.S. economy, although this year it has used a new lending arm. The Fed loaned hundreds of billions of dollars to banks and is starting to loan money directly to major businesses by purchasing commercial paper. This injections of credit is expected to help banks and businesses fund day to day operations. Unfortunately it isn’t an instant fix and even the Fed remarked in it statement that their actions would not lead to an immediate return of economic growth. That said, the Fed projects improved credit markets and a return of moderate growth “over time.” while warning that “downside risks to growth remains.”