US cuts rate to calm stocks

Due to the US cuts 0.5% rate,the Dow recovered almost 300 points yesterday.
The FTSE 100 was up and also elsewhere in Europe.
It looked like it really brought some calm to shares.
To Asian stocks market,how much can it affect since they had suffered heavy losses?

To Yen,will it make the Yen carry trade keep going ?
What’s the next way they may have for calming stocks?

There is no calm in the market, it’s still extremely volatile. And the measure taken can interpreted as an acknowledgement by the FED that things are far more serious than it was initially implied. The rate decrease may have a short effect but I am not sure it’s a suitable long term solution.

It’s not a long-term solution because the rate they cut (the rate at which the Fed lends to banks) is not the most significant rate (the rate paid by consumers), and therefore many feel it was merely “cosmetic” or “symbolic.”

But no matter. Any rate they cut is good in my mind (I posted my best gain in a looooong time on Friday) – and in the minds of many investors who drove the market up on Friday, especially because many believe the Fed will make the more important rate cut in the near future, which WILL have a more significant impact on the direction of the market.

[quote]Fed’s ‘symbolic’ move helps calm Wall Street

Rate cut may signal stronger action later

Moving to ease fears of a financial market meltdown, the nation’s central bank on Friday unexpectedly lowered the discount rate it charges banks.

The move has more to do with stock market psychology than with a fundamental economic shift.

Although it signaled its readiness to do so if necessary, the Fed opted not to change short-term interest rates, its most powerful tool for stimulating or slowing down the U.S. economy.

Instead, Fed Chairman Ben Bernanke moved to restore “orderly conditions in financial markets” by . . . . cutting to 5.75 percent from 6.25 percent the interest rate it charges banks when they borrow funds.

The stock market, which had been hammered downward 9.1 percent by repeated sell-offs over the past month, responded to the Fed’s latest action by staging a big rally. . . .

How long that confidence lasts is another matter, given the jittery gyrations the markets have endured of late. . . .

In contrast to an interest-rate cut, Friday’s discount-rate maneuver is unlikely to have any direct impact on American consumers’ borrowing costs, and Merrill Lynch economist David Rosenberg called the move “largely symbolic.”

But if it works as the Fed hopes, it will quell worries that the huge losses some major market players have recently suffered largely from their bets on high-risk “subprime” mortgages might set off a series of failures that could cause the entire credit market to seize up. . . .

The Fed, which has held interest rates steady for more than a year in order to damp down inflationary pressures, went out of its way Friday to acknowledge that it is prepared to cut rates if that is what is required to avoid a credit crunch. . . .

Many observers now consider it very likely that a rate cut will be announced when Fed officials meet in mid-September, or possibly even sooner. . . [/quote]
link

I think it is surly a short effect.
The rate they cut is not the most significant rate ,but Will it be,at least, a little relief to Wall Street ?

Now it is confusing ,some said :US will cut the rate in the near future or sooner.
some said markets will remain volatile in the near future…etc.
Investors are panic and helpless.
The most important thing is how to clam the stock .
And the rate decrease may be the first measure.
Am I right?

I have another question here.
Will more the hedge funds or money invest in China after the rate cut?
Thanks!

You are probably thinking of the interest rate, but what has been cut was the ‘discount rate’. Different thing.

You are probably thinking of the interest rate, but what has been cut was the ‘discount rate’. Different thing.[/quote]

Argh,don’t know what I am thinking of :blush:
I know it was talking about the discount rate but amlost think of a different thing.

Don’t have too much sleep during typhoon day. :stuck_out_tongue:

The rate cut wasn’t directed at the stock market. The rate cut was directed at the market for commercial financing. The stock market was in meltdown mode because the commercial financing market had frozen.

The housing mess is going to drive U.S. stocks down much, much further before it’s all over. Enjoy.

Not only US stocks…

PRC we’re sorry. Forgive us for being arrogant pricks on the trade issue. Please buy US T-bond again.

Markets did well yesterday on speculation that the Fed will cut interest rates. Bernanke didn’t exactly say that they would, but almost. :bravo:

[quote]Aug. 31 — Ben S. Bernanke, chairman of the Federal Reserve Board, declared on Friday that the central bank “stands ready to take additional actions as needed” to prevent the chaos in mortgage markets from derailing the broader economy.

Mr. Bernanke offered no explicit hint that the central bank will reduce the benchmark federal funds rate at the next policy meeting on Sept. 18, and his remarks suggested that the Fed was unlikely to take any action before that date unless economic conditions deteriorate unexpectedly.

But he said nothing to dissuade investors from expecting a rate cut at that meeting. That helped buoy Wall Street. . . [/quote]
nytimes.com/2007/08/31/busin … b1.html?hp

I read this news in this early morning.
And I think it helps the market more or less.
But how long can it affect?
I mean,if Bernanke could face the subprime problem in the first place,now
It may not be worse than now. :stuck_out_tongue: