Wednesday, October 8, 2008

Fed cuts rates by 50 basis points

And the vote was unanimous. The discount rate is now 1.75%, and Fed funds are 1.50%.

Once again, it was the markets that forced Bernanke's hand. And now Bernake has changed his inflationary tune from yesterday. Notice the statement:

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

In yesterday's speech, Bernanke said:

Still, the inflation outlook remains highly uncertain, in part because of the extraordinary volatility of commodity prices. We will need to continue to monitor price developments closely.

I'll take the rate cute, but I can't believe this Fed and other Central Bankers are so tone deaf to markets that they are continually reactive!

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