Wednesday 25 Nov 2020 | 02:12 | SYDNEY
Wednesday 25 Nov 2020 | 02:12 | SYDNEY

The fed rate cut: Panic or plan?


Mark Thirlwell

23 January 2008 09:14

So, the US Federal Reserve has responded to the recent widespread financial market turmoil with a 75 bp rate cut. The Fed’s media release cites continued deterioration in broader financial market conditions, tightening credit conditions,  a deepening of the US housing sector contraction, and some softening in US labour markets.  The Fed also warned that ‘appreciable downside risks’ remain, and markets now expect more policy easing to follow. As this Financial Times story points out, this is the largest single rate cut by the Fed since August 1982, and the first unscheduled rate cut since 17 September 2001.

In the short term, a key question is whether the Fed’s move is seen as a timely response that will restore market confidence, or as a sign of policy panic that will further destabilise market expectations.  Some interesting early blog commentary on developments can be found here, here and here.  Also worth a look is this recent New York Times piece by Roger Lowenstein, which takes a closer look at Fed chief Ben Bernanke and his approach to monetary policy.