On Tuesday Fed finally cut interest rates by a quarter point, disappointing investors who hoped the central bank would lower up to a half-point. Their disappointment led to stock's fall on Wall Street and there are new concerns on where the economy is heading, if indeed will overcome the credit and mortgage crisis. Counting on the fact that the Fed would do all it could to prevent the economy from slipping into recession, investors made good deals on the market and the stocks were up in the last two weeks. However, their views and those of the central bank did not match, although the Fed said on Tuesday that the new rate cut is supposed to propel the economic growth over time. The statement was categorised by Bill Knapp, economist and chief investment strategist for MainStay Investments, a division of New York Life Investment Management as being a clear and firm affirmation of the fact that the Fed think the rate has been cut enough. The rate cut was accompanied by a lowering of the discount rate (the interest it charges banks for loans) by a quarter-point to 4.75 percent, making it easier for banks to obtain the cash they need for year-end obligations. Moreover, the assurances that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending worsen should have ease investors preoccupation, but it didn't. As it is, the Dow fell 294.26, or 2.14 percent; The Standard & Poor's 500 index fell 38.31, while the Nasdaq composite index fell 66.60, or 2.45 percent. The 10-year Treasury note's yield, which moves opposite the price, fell to 3.97 percent from 4.16 and the dollar was way behind other currencies. Only bond prices rose a little bit and the bad thing is that oil price raised too, but not that much as it was last month and settled on the New York Mercantile Exchange at $90.02 per barrel. Bruce McCain, head of the investment strategy team at Key Private Bank, explained that Fed's decision has much to do with the fact that the former cuts still have to work their way into the economy. No matter the tactics applied by Fed, the banking suffered the consequences and Washington Mutual Inc. became the latest lender to resort to a massive stock sale to shore up its finances after Citi Bank and Switzerland-based UBS AG. Still until further notice there is nothing left to do than wait and see what is happening, so don't go away, more to come!
Writen by Claudia Sonea; edited by Iveta Nagyova
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