Fed Rate Cut: Another 1/2 Point

The funds rate has not been lower since 1958, when Dwight D. Eisenhower was president.

The last fed rate cut was earlier this month, in an out-of-band move. That cut was also 1/2 point, and was a coordinated move with foreign central banks, on Oct. 8.

The vote on move was unanimous.

In a statement regarding the fed rate cut, the Federal Reserve said:

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

So, despite the fed rate cut, a somewhat inflationary move, the slowdown overall will keep inflation in check, is what the statement says.

Strangely, as yesterday the markets ran up 900 points in anticipation of a fed rate cut, the markets fell sharply after the announcement.

The problem with the fed rate cut, beside the fact that it's rapidly running out of room for more moves, is that the lack of lending is not a question of interest rates. Banks and financial institutions are simply reluctant to lend to businesses or consumers.

In fact, yesterday the White House said banks had to start lending. Things haven't changed since then, however.

The full text of the Federal Reserve's statement can be found here.