Capital Markets

We’ve Seen this Movie Before: Feds Lower Rate Again

Central bank cuts the Fed fund interest rate to 2 percent -- the tenth reduction this year.
Stephen TaubNovember 6, 2001

So much for the invisible hand of capitalism. This afternoon, the Federal Reserve Bank cut interest rates yet again–this time by 50 basis points. The Fed funds rate now stands at a pawltry 2 percent.

The Fed last lowered rates on October 2, when the U.S. central bank reduced short-term rates to 2.5 percent — the lowest level since 1962.

The only other time there were 10 or more cuts in the fed funds rate was in the early 1990s, when the Fed cut rates 24 times between June 1989 and September 1992.

In a Reuters poll of the 24 primary dealers of U.S. government securities conducted on Friday, 15 predicted the Fed would lower the fed funds rate a half- point. Turns out, they knew what they were talking about.

“Heightened uncertainty and concerns about a deterioration in business conditions both here and abroad are damping economic activity,” the Fed said in a statement. “For the foreseeable future, then, the Committee continues to believe that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness.

“Although the necessary reallocation of resources to enhance security may restrain advances in productivity for a time, the long- term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.”

Following the announcement from the Fed, share prices on the major stock indices bounced up, then down, and then surged. The Dow closed up about 150 points at 9591.12 while the Nasdaq Composite closed up more than 41 points.

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