Feds Cut Rates By Half A Point, Market Rallies
Earlier today I posted on how big the federal reserve meeting today was going to be; would the market really benefit from a fed rate cut? Well, so far so good as the Feds cut rates by half a point, or .5% to 4.75% and the market has soared on the good news. Here are the major headlines:
- Yahoo Finance says, Stocks Soar After Half-Point Rate Cut
- MarketWatch says, Fed cuts rate by half a percentage point
- TheStreet.com says, Fed Nifty Fifty Fuels Stocks
- Bloomberg says, Fed Lowers Rate to 4.75%, First Since 2003
- Reuters says, Fed slashes interest rates to buffer economy
As of the close the indices are up as of follows:
- The NASDAQ Composite is up 2.71% to 2,651.66
- The S&P 500 is up 2.73% to 1,516.89
- The Dow Jones Industrial is up 2.51% to 13,739.39
What I find interesting about this half a point cut is how the market is saying it was done to “save the economy” from a possible recession. You look at the house market and see turmoil, so the Fed comes in to try to save the day, but will it really save the millions that are already in the process of defaulting on their mortgages? I found an interesting article from marketwatch that highlights this matter. It says:
“Many borrowers who now face painful adjustments in their mortgage rates are stuck because lenders have quit making loans in those riskier markets altogether, making it much harder to refinance out of a burdensome loan regardless of interest rates. The homeowners must either come up with the money for the higher monthly payments, work with their lender to modify their loan terms or sink into default and foreclosure.”
I leave you with a video from our friend and to some enemy Jim Cramer, definitely worth a watch (note this was shot before the rate cut decision). Should Bernanke have kept rates where they were at? Also, check out this video discussion from after the rate cut.
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Honestly, I think your opinion or my opinion on why the fed cut interest rates is just as valid as the talking heads at (insert your favorite news outlet).
If I had to venture a guess it would be Bernanke cut rates to avoid stagflation. Oil prices are out of control and driving up the price of everything. The Fed can’t stop that kind of inflationary pressure with interest rates as well as it can drive economic growth by cutting rates.
Simply put, it was an attempt to keep the economy humming to ignore a potential inflationary mess.
What is interesting about that is how dropping rates like this will fuel spending, and actually could very well help gas prices climb even higher.
It looks great from this side of the border. I have been buying on eBay like a fiend. short term happiness for Canadians but it won’t last. we rely too much on exports to the US. I wonder what will happen when your dollar is less than ours….
[...] since the Feds cut interest rates on September 18th things have been on a roll. So, if the market this week can hold up and show it [...]