Fed cuts rate 75 bps

March 18, 2008 2:21 pm

The Federal Reserve has sensibly cut the federal funds a further 75 basis points down to 2.25 %.   More rate cuts may follow if need be. Wall street has had a substantial rally particularly in the financial sector where reported earnings   that were announced fell less than the market had expected. The shares of Goldman Sachs, Lehman brothers, Lazar and other leading firms all rose by as much as 10-20 %.
The Bank of Canada will now have to follow this lead or face a stronger dollar than good policy would suggest.The Canadian dollar rose to 1.008 on the news of a rate cut. Inflation in Canada has fallen to 1.8 % and there is definite room for further rate cuts in the overnight rate.

The federal Reserve FOMC statement follows below courtesy of the Fed.


Release Date: March 18, 2008

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened.   Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen.   The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.   Still, uncertainty about the inflation outlook has increased.   It will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity.   However, downside risks to growth remain.   The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh.   Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent.   In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.


2008 Monetary Policy Releases

Last update: March 18, 2008