Mixed results from Fed rate cut
Wednesday, 23 Jan 2008 15:07
Analysts say the Federal Reserve's credibility is on the line
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The United States Federal Reserve's surprise rate cut has produced a mixed reaction from the world's markets today.
The rate cut of 0.75 per cent now puts the benchmark overnight lending rate at 3.5 per cent. Its effort, the biggest rate cut in 25 years, is a major attempt to renew investor confidence.
The Federal open market committee (FOMC) cited a "weakening economic outlook and increasing downside risks to growth" as the reason for the rate cut in an emergency meeting yesterday, just a week before the FOMC's regular meeting.
Sharp losses in shares in
Asia and
Europe over the past week have increased worries about the impact of the credit crunch on the global economy.
Stock markets in Asia have rebounded significantly in response to the cut, with Japan's Nikkei adding two per cent and the Hang Seng in Hong Kong putting on eight per cent.
Australia's S&P/ASX200 index rose 4.4 per cent today after shedding 7.1 per cent yesterday, while the Paris Cac 40 and Frankfurt's Dax 30 have seen losses of 1.33 and 1.55 per cent respectively.
The UK's FTSE 100 opened with a brief rebound on news of the rate slash, but has fallen by just over a percentage point in this morning's trading.
In spite of the massive emergency cut yesterday, US markets also failed to make a solid rebound after the Dow Jones Industrial Average closed down 1.05 per cent after yesterday's trading. The Standard & Poor 500 fell 1.1 per cent.
Some analysts have suggested that US president George Bush's stimulus plan for the US economy is too little too late after spending nearly a week in the red.