Federal Reserve of US cuts interest rates

Federal Reserve (Fed) has cut interest rates by half-percentage point during its Sep 18 meeting. The unanimous decision by the central bank’s policy-makers took the benchmark federal funds rate, which governs overnight loans between banks, down to 4.75 percent, its lowest since May of last year. The Fed also cut the discount rate it charges for direct loans to banks by a half-point to 5.25 percent. These interest rates cuts immediately boosted the Dow Jones Industrial Average (DJIA) by 2.51% to end at 13,739.39, the best daily percentage gain since 2003. (Reuters News, 18 Sep, by Mark Felsenthal).

In Singapore, the STI index shot up by 3.35% to end at 3594.36 on 19 September. This was a significant one day jump.

The financial community has been anticipating a cut in the Fed rates ahead of the meeting. The only unknown is how much Fed will cut to boost the US economy which has shown signs of slowing down due to the sub-prime mortgage woes. The half-percentage point cut was not anticipated. The market has only factored in a quarter-percentage point cut instead and hence the stock market rallied on this news.

 

Written on 9/19/2007 5:43 PM

 

Copyright © 2007, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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