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US Fed Trims Key Rates Half a Point
In a move meant to signal to investors that the Federal Reserve isn't panicked by the precipitous slowdown in the U.S. economy, central bank policymakers decided Tuesday to lower short-term interest rates by half a percentage point, to 5%, and hinted another move could come before its next meeting. Although the economy's current weakness hasn't hurt long-run productivity prospects, the Fed said in a written statement, "excess productive capacity has emerged recently," and there is a "possibility" the excess "could continue for quite some time." Amid such a drawn-out slowdown, the Fed hinted that it could move again soon to cut rates, perhaps before its next scheduled meeting on May 15. "In these circumstances, when the economic situation could be evolving rapidly, the Federal Reserve will need to monitor developments closely," the Fed said in its statement.
Fed Cut Doesn't Satisfy MarketsEven though the Federal Reserve again took a knife to short-term interest rates and suggested another move could come before its next meeting, Wall Street was not pleased. And investors turned their fury on beaten-up stocks. Many investors had hoped the Fed would lower rates by an aggressive three-quarter points, but when the central bank announced it was lowering rates a half point for the third time this year, prices began to slide. The Dow Jones industrials ended a heavily traded session down 238.35 at 9720.76, its lowest close in two years. The Nasdaq composite index tumbled 93.74 to 1857.44, a closing low not seen since November 1998.
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