This is the largest rate cut in the modern era in which rate changes have been publicly announced. In fact, it's the largest cut going at least as far back as 1990. (UPDATE: This link says that it is the largest cut since October 1984.) Here is the full announcement. I'll be in class most of the day, but occasionally checking to see how the markets are doing.
The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
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, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.
In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.
The Oct. 1984 claim surprised me. It does seem the FED lowered the Fed Fund target from 11% to 10.5% as of 10/10/1984. By itself, not as large but then it lowered the Fed Fund target from 10.5% to 10% about a week later. Wasn't this just before the 1984 election when the GOP was singing "Morning in America"?
OK - my attempt at Reagan bashing fails the "ha ha" test for reasons I articulate over at Angrybear. CNN doesn't seem to get that the instruments of monetary policy are not always the same decade to decade. Oh well!
Given my age (nearly 58) and that much of my subsequent success derived from the time that I spent at the Open Market Desk circa 1979 through 1981 I am appalled to read that I worked there during the pre-modern era!
I dug a bit. I think the disparity in information depends on whether you're looking at Fed Funds or Discount Rate. The 1990s episode saw the DR drop by a full 100 basis points, while FF dropped 50. You might have to go back to the 80s to see FF drop 75 basis points.
For some reason this post got slammed with spam. Comments on this post are closed.