FOMC Takes Aggressive Action

After an unscheduled meeting, the Federal Open Market Committee today lowered the Federal funds rate by seventy-five basis points to 3.50%. It was the largest cut in the rate since October 1984, followed thereafter by moves either in 25 or 50 basis point increments. The rate was last at 3.5% in August of 2005.

Voting against the decision was St. Louis Fed President William Poole.

The discount rate also was reduced seventy-five basis points to 4.00%.

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth." It came ahead of next week's regularly scheduled meeting of the FOMC.

Worried about even further deterioration in U.S. economic conditions, the Fed indicated that "Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

Still expressing some caution, the FOMC indicated only "that it will be necessary to continue to monitor inflation developments carefully."

For the complete text of the Fed's latest press release please follow this link.

UK orders are holding in positive territory, but not by much. Order volumes expected in 3-Mos snapped back in January. Prices are staying very strong in the range in the top seven percent since end 2000. Export orders did tick back down in January to -4 juts below their 12-month average at -3. On balance the UK industrial sector looks fairly firm and somewhat inflation prone.

After a day of record declines in stock markets around the world, the Fed announced, in an emergency move, a 75 basis points cut in its benchmark interest rate from 4.25% to 3.50% today. This is the largest cut since the Fed began, in 1990, to use this rate as its principal tool of monetary policy.

Daily prices of many of the stock markets of the world can be found in the Haver data base, INTDAILY. We have attached five charts showing daily stock price changes in selected countries in five areas of the world: Western Europe, Eastern Europe, Asia, South America and the Midlle East. The random nature of the day to day stock price changes make for messy charts, but unusual movements such as occurred yesterday do stand out. It should be noted, too that in several countries, similar stock price declines occurred last August, when the sub prime crisis was first surfacing.

The reaction of U.S. and foreign investors to the Fed's dramatic move can be monitored using the high frequency data in the Haver data bases, DAILY and INTDAILY. These data bases contain daily data on interest rates, exchange rates, stock markets and commodity prices