Impacts of the Fed interest rate cut by Lenka Filipova

This early morning the Federal Reserve announced an emergency cut in interest rate. After resumed Tuesday Wall Street did its best to join in the plunge, but by finishing down by 465 points, the Dow Jones industrial average redeemed a loss of 128.1, or 1.06 percent, at 11,91.19. Previously before trading, the Fed cut its benchmark federal funds rate by 0.75 percent to 3.5 percent. Moreover, it cut the discount rate that is directly charged to banks to 4 percent. This was the response to an international stock sell-off and to all worries about a feasible U.S. recession. For the future market, that is going to be held on the following Tuesday, it is estimated that the Fed will make a cut of approximately a 0.5 point. The cut was accepted by the majority of traders but the policy of the Fed was somehow not understood that it made the call between regularly scheduled meetings of its policy-making Open Markets Committee. The long-term recovery is guessed to be attributed to comeback of the housing recovery and improvement of customer's sentiment, which makes up the crucial part of U.S. economy. The reduction in interest rates is a tool the Fed is using to make a recovery in economy. It should retrieve economy in a way that it will provide it more available, meaning more cheaper, for the business to borrow money. However, the effect is not so conducive for housing. It has mainly to do with the worries about most of adjustable-rate mortgages which are continuously increasing, and also home prices that are thought to be falling this year. The Bush administration has assumed the package for $145 billion in tax cuts and the plan to stop plummeting of mortgage. After the Fed intervention it promised to maintain the arrangement. As Dana Perino, the pres secretary, said "I am not going to close off any dors."

by Lenka Filipova for PocketNews (http://pocketnews.tv)

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