FOMC cut interest rates by 0.25% to 4.25%
12 December 2007
US stocks plummeted last night as the US Federal Reserve decided to cut the Fed Fund and Discount rates by 0.25% to 4.25% and 4.75% respectively. Although a 0.25% cut was expected by analysts, equity traders were left disappointed as the Fed failed to make the half per cent cut they had hoped for. Last nights rate cut follow two previous cuts by the Fed of 0.50% in September and a further 0.25% in October.
At their latest meeting, the Fed assessed that “economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in the financial markets have increased in recent weeks”. However, the Fed feel that today’s action combined with the policy actions undertaken earlier should help promote moderate growth over time.
On inflation, the Fed suggests that although “readings on core inflation have improved modestly this year, elevated energy and commodity prices, among other factors, may put upward pressure on inflation.” Overall, the committee judges that although some inflation risks remain, it will continue to monitor inflation developments carefully.