FED cuts rates 50 basis points to 1 %

October 30, 2008, 6:11 p.m.

The American Fed has announced a one half percentage point cut in its federal funds rate. The rate is now 1 % This rate is very low in nominal terms and     ought to contribute to the reliquification of the American economy .   It appears that the equity markets had already priced this rate cut into their valuations and the market fell after the cuts were announced. Yesterdays large rally of about 900 points was probably driven in part by the anticipation of this rate cut. The Canadian dollar recovered close to 5 cents in comparison to the US dollar as the spread on interest rates rose for the time being. As well oil prices recovered somewhat. NYMEX oil was selling at a little over $68 a barrel. With the likelihood of another substantial fiscal stimulus package in the near future strong the combination of quite low rates and large fiscal stimulus is quite likely to lead to positive economic results limiting the fall in activity and perhaps sooner than later reversing the downword trend altogether.
Other countries cutting rates or considering doing so include China a cut of .27 % down to 3.6%; Norway 50 basis points down to 4.75 %, the U.K.'s Bank of England and the European Central Bank. The UK's deficit is also rising as part of Allister Darling's deliberate Keynesian strategy of stimulating the British economy with a deficit that might rise as high as 6 % of the National Income. Britain's debt to GDP ratio remains low at about 43%. Japan has a debt to GDP ratio of 180 %.