zip106

U.S Fed has just cut their interest rate. After 10 mins of trading the Dow Jones went up 2.41%.
FTSE 100 up 3.62% as at 14:35 hrs.

lozgti

So if they hadn't,we would have had meltdown?

I don't know,just asking

fast bloke

Pete - No 5 o'clock headline today?

Petem95

Pretty desperate measures taken by the Fed! Markets are in a huge mess sparked by too much cheap high-risk credit, so time to save it with... more cheap credit!

Bloomberg.com: Worldwide - Bloomberg - Fed Cuts Discount Rate in Extraordinary Attempt to Contain Subprime Crisis

Interesting to see mortgage rates are already up from a number of lenders!

zip106

I guess that it wouldn't quite be a meltdown, but just a further slide.
The Dow has just closed up about 1%, but European markets have risen quite sharply.

Think this will go on for a bit longer yet!
Glad(ish) I've still got 20+ years left for my pension to grow.......look on the bright side, the less shares are worth now the more units my pension can buy so hopefully when there's an upturn pensions will be worth more.

The Snug Rhino

FTSE drops over 3% in a day and its a MELTDOWN

FTSE rises over 3% in a day and its a dead cat bounce?????

Thats either very bouncy roadkill or i was right and you were wrong?

fast bloke

Now you are just making stuff up. The actual headline in your link is "Fed Cuts Discount Rate, Acknowledging Need to Act"

So a synopsis

US put rates up several times - causes defaults in the sub prime market.
US cuts rates once to help sub prime market........."desperate measures"

Petem95

Bloomberg.com - Look at the top news story, the headline is "Fed Cuts Discount Rate in Extraordinary Attempt to Contain Subprime Crisis", although when you click through thats not the headline of the story.

Theres no way this is the end of it all, however its nice to see the value of my shares up slightly at least

fast bloke

My apologies - it wasn't you making stuff up - it was bloomberg.

The fed announced that it was cutting rates as it was concerned about a rising threat to economic growth. For the past three years the FOMC have been focused on inflation targets. Their inflation index dropped to 1.9% during June (its lowest level for three years) and so the Fed's 'change of focus' is hardly 'extraordinary' - An emergency rate cut is unusual, but if you look at the big picture you could say that the root of this problem has been caused by the Fed raising rates and not allowing time for the rises to have a bearing on the market before raising again. This being the case, they have realised they have raised rates too far and have now corrected their error.

Remember - the US discount rate has been as low as 1.75% and has increased to 6%. This is a 350% increase. The UK equivalent would be for rates to hit 12%. If BoE raised rates to 12% in a very short period causing a subsequent market crisis, where would you point the finger?

Petem95

Understand what you are saying Fastbloke, but the Fed is primarily about targetting inflation like you say. The problem is that there was a borrowing frenzy due to slack lending and the carry trade when rates were low, so that when rates increased a lot of people got into hot water.

The effects of the actions they've just taken are that in the short term the markets are happy, but the dollar has fallen against almost every other currency, so irronically the effect will be inflationary, putting further pressure on rates in the future.

IMO its the same in the UK - the BoE arent really the bad guys for upping rates to counter inflation, its the crazy amount of borrowing that went on when rates were low - and rates not needing to rise much for people to start struggling.

Its a tricky situation to get out of, and IMO the banks are probably the ones to blame for allowing the flood of easy credit.

Leslie

It may look better at the moment, but I shall be surprised if it does not all come back eventually.

Les

fast bloke

The Fed WAS primarily concerned about inflation, but now that inflation is below target they are focusing on growth. If it was only about inflation they could up the rates to 10% causing negative inflation, but at the cost of having a sustainable economy. I am not disagreeing that their economy and ours may be completely stuffed, but merely pointing out that headlines are there to grab attention, often at the cost of realism.

The entire Bloomberg article contains all the facts (including the fact that US year on year inflation was 1.9% in June) but they could have an equally valid headline stating that the Fed has dropped interest rates to stop inflation falling. Instead they call it an 'extraordinary attempt...'

If our CPI rate stays at 1.9% over the next 2-3 months the MPC will also cut rates. The reactions are completely predictable for anyone who has studied basic economics, so I don't see the requirement for sensationalist headlines giving a skewed version of reality.

Say there was a bus crash on the M25 and 10 people died. The equivalent headline would be "Road deaths on M25 average 3650 a year" - This would be technically correct using the stastics from a single day extrapolated to cover a full year, but everyone would know it is complete tosh as they already know that the liklehood of this happening every day for a year is remote. It could happen, but it is unlikely. Slightly different with economics as most people won't have a good understanding of the big picture, so they rely on what they read to form opinions. Once you read the headline you are hooked and never question that the most likley outcome of lower than target inflation is an interest rate cut