The Fed Open Market Committee met today. They opted to lower the fed funds rate 25 bips, and do the same with the discount rate. Some traders were sorely disappointed:
Among those not amused by The Fed’s decision to put the possibility of $5/gallon gas for many over the cleaning up of the errors of a few, screaming demon Jim Cramer – a bit whiny for this information consumer. Another person that will not be swigging fine scotch (like the bottle I just received as a holiday gift) tonight, Wells Fargo Chairman Richard Kovacevich, who was pretty certain just this morning that the Fed would cut the discount rate by 50 to 75 bips.
After the market closed, I was waiting for the Fed to say “Oops, we made a mistake.” But alas, it didn’t come. Thank goodness for that.
UPDATE: Fed governor Eric S. Rosengren was disappointed too.
UPDATE 2: Backpedaling. The Fed always does this, so what’s the fuss?
UPDATE 3: Ha! Just kidding.
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent…
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent.
What happened to “no pain, no gain?”
UPDATE: Jim Rogers and Marc Faber are calling for pain nonetheless, covering generally the same points made yesterday. The Fed clearly chose the easy route, and everyone’s happy (for the moment).
From The Federal Reserve:
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.
They’ve been pumping money into the system the last few days. I believe adjusting discount rates is more a psychological move.