The Federal Reserve Open Market Committee today cut the federal funds rate by 50 basis points to 5%, and the Federal Reserve Board of Governors approved a cut of 50 basis points in the discount rate to 4?%. The Fed indicated it was concerned about the decline of the stock market and state of the economy. "Persistent pressures on profit margins are restraining investment spending, and, through declines in equity wealth, consumption, it said in its statement.
Stephen Burke, principal and global strategist at State Street Global Advisors, said the Feds focus on the stock market and economy would be a boon for the market because it reinforces investors belief that the Fed will make another rate cut before its next scheduled meeting in May if it deems that economic conditions warrant it. "It leaves open the possibility of an intervening move, which the market was looking for, he said.
"I would not be surprised if he (Alan Greenspan) cut rates again between now and the next Fed meeting, said Marc Bonavitacola, chief investment officer of the $5.3 billion Philadelphia Municipal Employees Retirement System. However, he said todays cut was expected, adding, "I dont see it having a profound positive effect on the economy.
The markets took big losses after the announcement. The Dow Jones industrial average closed down 238.35, or 2.39%, at 9,720.76; the S&P 500 fell 28.19, or 2.41%, to close at 1,142.62; and the Nasdaq composite dropped 93.72, or 4.81%, closing at 1,857.46. All numbers are preliminary.