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| January 23, 2008: Fed puts the pedal to the metal, cutting rates by a whopping 75 basis points in effort to avoid a fall into recession... |
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In an emergency move yesterday, the US Federal Reserve slashed interest rates by a whopping 75 basis points (3/4 of a percentage point). This is the largest rate cut in over 23 years, in an urgent move to attempt to avoid having the US economy slide into recession. The overnight lending rate between banks in the US is now down to 3.5%, the lowest rate since September of 2005. The discount rate charged by the Fed in direct loans to the banks is slashed to 4%. The move comes on the heels of global market panic and deepening fears that the impending US recession will drag various world economies down with it. The subprime crisis, the out of control US health care crisis and other economic concerns are all eroding confidence in the US economy. The move is also significant in terms of historic context Tuesday's rate cut was the largest single shift in interest rates since November of 1994 when the Fed raised rates by the same number of basis points. Tuesday's rate cut was also the first rate cut between regularly scheduled policy meetings since Sept. 17, 2001 (the first day that the US financial markets re-opened subsequent to the September 11th 2001 terrorist attacks). Tuesday's rate cut of 75 basis points is also the first one of such magnitude since the Fed's 75 basis point rate cut of October 1984. The magnitude of this rate cut, along with the fact that the Fed rarely trims rates between scheduled meetings point to the urgency of the matter. Strap on your seatbelts and stock up on the Gravol! In the short term it's going to be a heck of a ride... E.&O.E. |
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