Feds Cut Rates!!!

Another Fed Day arrived and in a unanimous decision, the Federal Open Market Committee (FOMC) cut the Fed funds rate today by 50bps to 1.0% and also slashed their discount window rate by 50bps, taking it down to 1.25%. While this will help reduce rates on credit cards and car loans, long-term mortgage rates pushed higher.

The FOMC cited a clear slowdown in economic activity, business equipment spending, and industrial production as a primary reason for their decision. They also stated slowing foreign economic activity will dampen prospects for U.S. exports. As a result, the Fed expects 'inflation to moderate in coming quarters' but 'downside risks to growth remain.' This language leaves the door open for further rate cuts in the future if the Fed decides they are needed to keep the economy from falling into a severe, protracted recession.

As expected, the Fed's actions weakened the U.S. dollar and this in turn triggered a spike in oil (+$6/barrel) and gold (+$13/oz) prices. The stock market also experienced some severe volatility as nice gains in the Dow and S&P 500 suddenly became losses during the last 15 minutes of trading when short-term traders sold to take profits following yesterday's sharp rally.