More Fed Strangeness
Usually the Federal Reserve announces any interest rate changes at 11:15 (Pacific Time) on the day of their FOMC meeting.
Last night I heard on the news that they were going to lower the rate by 1% and saw several articles in print saying the same thing. Some even suggested a rate cut of more than 1%. I predicted at least 1% yesterday before I saw any of the articles.
It appears that the Fed has leaked their intentions early so they would impact the stock market opening this morning to build upon yesterday’s market action where the market opened sharply lower but then closed higher on the day. (The DOW closed higher, other indexes closed a lower but well off their lows.)
This is all about sentiment. The Fed is making these very dramatic moves to impact investor psychology as much as anything else.
Remember that just six months ago they were saying that they didn’t see the housing and mortgage mess spilling over into the rest of the economy. But denying the problem didn’t do anything to stop it from happening.
The Feds recent moves has caused the dollar to plunge to record lows and commodities to go to record highs. Another problem they face is that every decrease in interest rates leaves less room to lower them in the future.
UPDATE: The Fed lowered the fed funds rate by 3/4 point. The immediate reaction of the market was one of disappointment. The market had been up over 300 points in anticipation of a bigger cut. I guess those early reports were more speculation than leaks. The market later recovered to new highs.
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