Tuesday, March 11, 2008

The Stock market and Interest Rate Cuts


Despite five interest rate cuts in the past six months, Wall Street has remained impervious to the Federal Reserve's wooing, with investors taking a "thanks, but..." attitude to Ben Bernanke & Co.'s attempt to recharge the economy and stock market.

Since September, the central bank has lowered its federal funds rate, a key overnight bank lending rate, to 3% from 5.25%. This included a 75 basis point emergency cut in January. There are 100 basis points in one percentage point.

Federal Reserve policy-makers will meet again on March 18 and are expected to cut rates by at least another 50 basis points, to 2.5%. Coincidentally, the Fed's next meeting also marks the six-month anniversary of the first cut in this easing cycle...
Since the first rate cut on Sept. 18 of last year, through Monday's close, the S&P 500 is down 16.2%. That makes this the worst performance for the market following a series of rate cuts since the 1950s, according to Standard & Poor's research. And that's taking into account other times when the economy was in a recession, as may be the case now.

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