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Fed Cuts Rate 0.75% and Stocks Swing>>>
By MICHAEL M. GRYNBAUM and JOHN HOLUSHA
The Federal Reserve, responding to an international stock sell-off and fears about a possible United States recession, cut its benchmark interest rate by three-quarters of a percentage point on Tuesday, an aggressive move that came ahead of a regularly scheduled meeting of the central bank.
The Fed’s policy-making group, known as the Federal Open Market Committee, lowered its target for the federal funds rate, which regulates overnight loans between banks, to 3.5 percent, from 4.25 percent.
The surprise move, unusual in both its scale and its timing, underscored the severity of the current strains facing the economy. And it bolstered world markets that had opened the week with a sell-off. European stocks turned upward on the news, and Wall Street averted the deep losses that had been anticipated overnight.
“It’s a once-in-a-generation event,” said Mark Zandi, chief economist at Moody’s Economy.com. In recent years, the Fed has rarely acted between scheduled meetings of the committee, and almost always in increments of one-quarter or one-half point. It was the biggest short-term cut since October 1984.
In a statement Tuesday morning, Fed officials said they made the decision to lower rates after “a weakening of the economic outlook” and noted that “broader financial market conditions have continued to deteriorate.”
The move came as efforts continued to put together an economic stimulus package that could win swift bipartisan approval. President Bush met with Congressional leaders at the White House on Tuesday afternoon, expressing confidence that his administration and Congress would find “common ground” on a stimulus package.
“Everybody wants to get something done quickly,” Mr. Bush said, referring to the economic “uncertainty.” “We want to make sure it’s done right.”
For the shaken world markets, the Fed’s move seemed to provide some relief. When trading resumed after a Monday holiday, Wall Street initially joined in the plunge that had shaken Europe and Asia for two days. But after opening down by more than 460 points, the Dow Jones industrial average regained most of its losses, closing off 128.11 points, or 1.1 percent, at 11,971.19. It was the lowest close in 15 months.
Other indexes were down slightly more, but still less than the futures markets had indicated. And European markets came surging back, shaking off early losses, though not enough to make up for Monday’s plunge. Stocks in London and Paris closed more than 2 percent higher.
Jan Hatzius, chief United States economist at Goldman Sachs, said the timing of the Fed’s cut may turn market performance into a referendum on the Fed’s move.
“By itself, it’s not necessarily a wrong thing to do if you’re worried about systemic stability,” Mr. Hatzius said. “Nevertheless, it’s a little tricky because it ties you from a short-term perspective to what happens in the stock market.” A sell-off could be viewed as a vote of no confidence from investors, he said.
Economists were divided on Tuesday about whether the rate cut would help the economy stave off a recession.
“This is an effort to catch up and get ahead of flagging confidence in the weakening economy,” said Mr. Zandi, who has criticized the Fed for not responding faster to the current crisis. A smaller cut “might have created more panic among investors,” he added. “But the fact that they moved in such a decisive way strongly signals that they are going to work very aggressively to shore up confidence in the economy.”
In a related action, the Fed approved a 75 basis-point decrease in the discount rate, to 4 percent.
Futures markets are now expecting the Fed to cut another quarter-point off the federal funds rate at its regular meeting, which begins on Jan. 29.
In its statement, the Fed said: “The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”
“Moreover,” the statement continued, “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
Fed officials also indicated, albeit obliquely, that they were concerned about a possible recession. “Appreciable downside risks to growth remain,” the Fed said in its statement.
The White House maintained a confident face, but clearly worried about the impact of the global sell-off. “Americans should be confident that the long-term health of the American economy remains strong,” the press secretary, Dana M. Perino, said on Tuesday morning.
As the market news broke on a holiday, Treasury Secretary Henry M. Paulson Jr. called President Bush on Monday afternoon to brief him about what was happening.
“We don’t comment on daily fluctuations in the markets,” Ms. Perino said on Tuesday. She also declined to comment on the Federal Reserve’s rate cut, but she did urge Congress to move quickly to pass a stimulus measure, saying she hoped one could be passed within “weeks not months.”
“I’m not going to close the door, but I’m not suggesting that anyone believes it has to be bigger” than the roughly $150 billion figure already discussed, Ms. Perino said. Later, according to The Associated Press, Ms. Perino said that at this point the White House had not “seen higher numbers floated by members of Congress” and that Mr. Bush believed that the growth package he has outlined is “the right amount.”
Senator Harry Reid of Nevada, the majority leader, said Tuesday that Congress should aim to have a bill to President Bush for his signature within three weeks, Bloomberg News reported.
Senator Christopher J. Dodd, the Connecticut Democrat who is chairman of the Banking Committee, said the Fed’s action was only a first step toward dealing with the recent economic downturn and financial turmoil. “More action from policymakers is needed to help restore investor confidence and ease financial strains on homeowners,” he said.
In addition to the stimulus package that Congress is considering, he said, other steps will be needed to restore long-term growth and stability. He cited legislation to reform the Federal Housing Administration, to end predatory lending and to promote affordable home ownership.
The jockeying over legislative initiatives came as the head of the Congressional Budget Office cautioned that stimulating the economy using tax rebates or other fiscal policy measures is not simple or quick, and risks aggravating inflation if the impact arrives after the economy has recovered on its own.
Testifying before the Senate Finance Committee, the official, Peter Orszag, said workload issues at the Internal Revenue Service would prevent the mailing of rebate checks until after the peak tax filing in late May or early June. And then it could take 8 to 10 weeks to distribute the checks, meaning the impact of the action might not be felt until the second half of 2008 or early 2009.
Responding to questions, Mr. Orszag said previous efforts to stimulate the economy showed that lower-income families were more likely to spend extra money soon after receiving it, rather higher income households with the capacity to borrow. He said the key to any program to bolster the economy would be to get the funds to people who will spend it within two months.
He said any stimulus action should focus on the underlying economy, regardless of what was happening in financial markets, like stock and bond exchanges. In fact, he said, some forecasters are calling for “sluggish growth” this year, rather than a recession, where output actually shrinks for two consecutive quarters.
Mr. Paulson, speaking to the United States Chamber of Commerce, said Tuesday that the administration and Congress needed to agree quickly on a stimulus package.
“Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible,” Mr. Paulson said.
Mr. Paulson said he was optimistic that the administration and legislators could find a bipartisan “common ground” on the economic package and “get this done before winter turns into spring.”
He also said he hoped to do something in the next couple of weeks “that will make a difference this year.”
The Treasury Department, he said, was focusing on the way home mortgages are originated and traded and said the department is developing a new regulatory framework for subprime and jumbo mortgages where he said markets were not functioning well.
Steven Lee Myers and Brian Knowlton contributed reporting.
http://www.nytimes.com/2008/01/22/business/23cnd-fed.html?_r=1&bl&ex=1201150800&en=0019b93b4bb1c219&ei=5087%0A&oref=slogin
They're saying probably another .5 next Tues. at the scheduled meeting!
Where ya been SueSue??
Busy at work? How bout those interest rates...
Is that all? She needs to get her belly "bundon" pierced!
I love mine! (I forgot, how old is she?)
Next best song in the world.....
Geezam....
the market is absolutely fugly!!
How is Harly doing? Any tats or piercings yet?? :-p
Best guitar solo ever, best song ever....
These are my "kids"....
Pnut on the left she's 2ish, Sissy on right she's old
The new kid, Tooty, he's about 6 mos... this was right after I found him near Burger King
My kitties are "trash" cats that I've rescued as kittens. They are the BEST natured cats I've ever had.
My Persians were always sweet, too.
But I had a purebred show quality Himalayan (cha-ching!) once and she was the nastiest tempered cat I EVER had.
Do I see the Coronado in the background of your siggy???
Beautiful place!
Oh noooo, Carlos! I'm soooo sowwy.
I sure hope not!! It's got to be 5 somewhere!!
Where is SueSue???
Carloooooossss!!! Howdy!
How about that! I always wondered where treeland was.
Sorry to hear you're doing lousy. I guess misery loves company..
LOUSY, but thank you for reminding me!! lol
How are things in Tree land?
Maybe a little humor will help?
Qantas Airlines
Remember it takes a college degree to fly a plane, but only a high school diploma to fix one. Reassurance for those of us who fly routinely in our jobs.
After every flight, Qantas pilots fill out a form called a "gripe sheet," which tells mechanics about problems with the aircraft. The mechanics correct the problems, document their repairs on the form, and then pilots review the gripe sheets before the next flight.
Never let it be said that ground crews lack a sense of humor. Here are some actual maintenance complaints submitted by Qantas' pilots (marked with a P) and the solutions recorded (marked with an S) by maintenance engineers.
By the way, Qantas is the only major airline that has never, ever, had an accident.
P: Inside main tire almost needs replacement.
S: Almost replaced left inside main tire.
P: Test flight OK, except auto-land very rough.
S: Auto-land not installed on this aircraft.
P: Something loose in cockpit.
S: Something tightened in cockpit.
P: Dead bugs on windshield.
S: Live bugs on back-order.
P: auto pilot in altitude-hold mode produces a 200 feet per minute descent.
S: Cannot reproduce problem on ground.
P: Evidence of leak on right main landing gear.
S: Evidence removed.
P: DME volume unbelievably loud.
S: DME volume set to more believable level.
P: Friction locks cause throttle levers to stick.
S: That's what friction locks are for.
P: IFF inoperative in OFF mode.
S: IFF always inoperative in OFF mode.
P: Suspected crack in windshield.
S: Suspect you're right.
P: Number 3 engine missing.
S: Engine found on right wing after brief search.
P: Aircraft handles funny.
S: Aircraft warned to straighten up, fly right, and be serious.
P: Target radar hums.
S: Reprogrammed target radar with lyrics.
P: Mouse in cockpit.
S: Cat installed.
And the best one for last..................
P: Noise coming from under instrument panel. Sounds like a midget pounding on something with a hammer.
S: Took hammer away from midget.
Doesn't look like a very good market?
I think that's putting it mildly!! :-0
Good morning TREE!!
SOS, different day....
How goes it in your world?
Good morning Phil!
I must have wandered to the Food board...
I thot this was the Beer board! lol
Good mawnin!!!
GREAT!
Bush is getting ready to make a statement about the economy...
time to BAIL!
Good morning Phil!
Good to "see" you again...
TREEEEEEE!!!
Good morning! How are you???
Good morning Tina!
I boardmarked Chart's place... and yes, he's good!
LARRY!!! Good morning, do you have my coffee ready?
Good morning Tiki!
I'm trying to get back. I decided to take a little time off and one thing led to another.....
How are you doing??
Been a little "off course" for a while....
Trying to get back on an even keel now!
I'll try to pop in more often.
Nitey nite and sweet dreams!
Yeah, I started "straying" a bit from Ihub with other things
diverting my attention and just realized how long it had been!
I've got so much happening now it's hard to find time to breathe!
Hey strangers....
Nabe? What's a "nabe" lol....
FERN!!!
How are you? I will certainly try to visit more often.
I hope all is well in your world.
Ruh roh..... was someone talking about me???
I hope it was all good!
WHO!?!?!
You too! Drive safely...
Yeah, I almost forgot what it was like!!
Where IS larry??? I didn't give him the day off!
Howdy Tiki!!
How the heck are you?
Hmmmm, not sure I like the alternatives...
What ARE the alternatives? Or do I want to know?!?!