Fed funds and discount window. The talk all morning has been that this was coming. The Fed had no stomach for testing the lows.
Why did the Fed swing so hard in favor of cuts? It's hard to escape the impression that the Fed is taking orders from the stock markets. Forget the blather about credit and housing markets; the Fed could have waited till the regular meeting to deal with those problems. Today's cut is all too clearly a response to the action in the global equities markets. So what is the market saying now? The fed fund futures market is already predicting/demanding another cut at the regular meeting at the regular meeting. Cramerica is saying that this cut is "too little, too late."
Our sources say that the view within the Fed right now is that there's at least another 25 basis points coming at the end of the month. But the view within the Fed keeps changing every few weeks, so maybe we should stop wondering what the Fed is planning.
Full release after the jump.
Release Date: January 22, 2008
For immediate release
The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.
In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.