Archive for Wednesday, December 12, 2007

Fed drops key rate for third time this year

December 12, 2007


— The Federal Reserve gave borrowers a rate cut present for the holidays. Wall Street's response: Bah humbug!

Fed Chairman Ben Bernanke and all but one of his colleagues agreed Tuesday to trim the central bank's most important interest rate by one-quarter percentage point to 4.25 percent. That left the federal funds rate at a nearly two-year low. The action is aimed at preventing a housing and credit meltdown from pushing the economy into recession.

Wall Street, though, thought the Fed was being stingy and stocks took a nosedive. Some investors were hoping for a bigger, half-percentage-point cut. The Dow Jones industrials plunged 294.26 points to close at 13,432.77.

"This seems to have disappointed some on Wall Street who were looking for a little more in their Christmas stockings this year from Santa Bernanke," said Scott Anderson, economist at Wells Fargo Economics.

The rate reduction, the third this year, was needed to energize national economic growth, Fed officials explained. The deepening housing slump is affecting the behavior of consumers and businesses alike, they said.


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