Fed Strikes a Sound Note

Wall Street cheers the 75-point cut.

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The Federal Reserve's decision to lower its benchmark interest rate by three quarters of a point to 2.25 percent drew cheers on Wall Street despite the cut being a bit less aggressive than expected. The Dow surged to a new daily high, shaking off jitters before the Fed's announcement to gain more than 325 points, or 2.7 percent in late trading. The Nasdaq and the S&P 500 both climbed more than 3 percent.

The Fed's nod toward the threat of rising inflation in its post-meeting statement, not to mention a growing need to support the ailing dollar, were welcomed despite expectations among futures traders that a full 1 percent cut was in the cards.

Given the huge amount of liquidity and lending options the Fed has ginned up in recent months to help spur lending in the stricken financial sector, lowering interest rates most likely has less of an impact on market sentiment than headlines from the financial and housing sectors. It often takes more than a year for lower rates to spur economic growth. More likely, investor attention will remain focused on unknowns like quarterly earnings reports from at-risk investment banks. Better-than-expected results from Goldman Sachs and Lehman Bros. sparked bullish buying earlier in the day.

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Federal Reserve
Wall Street
  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.

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