U.S. equities ended lower today but well above their worst levels in early trading, as the Federal Reserve cut the benchmark fed funds rate by three-quarters of a point to 3.5% for its first intermeeting easing since January 2001. It was the largest one-time move in 14 years, since a 75 basis-point hike in 1994, and the largest cut since 1984.
Early on, the Dow had given up 464.48 points for a 3.83% loss, as sell orders piled up following the Martin Luther King Jr. holiday on Monday, when U.S. markets were closed. Foreign markets sold off broadly on Monday and today until the Fed stepped in, saying that “financial market conditions have continued to deteriorate.”
The Dow closed down 128.11, or 1.06%, at 11,971.19; the S&P 500 fell 14.69, or 1.11%, ending at 1,310.50; and the Nasdaq composite closed down 47.75, or 2.04%, at 2,292.27. All numbers are preliminary.
In Asia, where markets closed before the Fed’s move, Tokyo’s Nikkei 225 index ended down 5.7% at 12,573.05, while Hong Kong’s Hang Seng index gave up 8.7% to 21,757.63. Chinese markets have lost at least 12% in the past 48 hours.
But the Fed provided timely help to save European bourses: in London, the FTSE 100 index ended up 2.9% at 5,740.10; in Paris, the CAC 40 was up 2.1% at 4,842.54; and in Frankfurt, the DAX 30 finished off just 0.3% at 6,769.47.
“People saw this as absolute panic,” Max Bublitz, chief strategist at SCM Advisors, said of the Fed’s emergency cut in the funds rate, which governs overnight interbank lending.
The rate cut is expected to help relieve the credit crunch stemming from the mortgage crisis by helping banks restore their balance sheets and keep on extending the loans needed to keep the heavily leveraged U.S. economy afloat.
Fed officials are next meeting Jan. 29-30, and analysts said today’s move does not rule out the possibility of another rate cut then.
