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Bernanke admitted defeat and Released the Pressure



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Sep 19 2007
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If you do not know yet, the announcement is already all over the financial news portal. Federal Reserve Chairman Ben Bernanke and his central bank colleagues admitted defeat and lowered the interest rate to 4.75 percent, a half point cut from 5.25%, pressured by the political and economy built up over the months.

Wall Street responded happily sending stocks up over 335 points – its biggest one-day point jump in nearly five years. The first cut in over four years means borrowers who can obtain credit should see rates drop on a variety of loans such as credit cards and housing mortgages. Already Wells Fargo, Bank of America and other commercial banks dropped their prime lending rate charged to millions of borrowers by a corresponding amount to 7.75 percent after the announcement.

“Today’s action is intended to help forestall some adverse effects on the economy that might otherwise arise from disruptions in financial markets and to promote moderate growth over time … some inflation risks remain” the Fed said in a statement released after its closed-door meeting.

While some other analysts predict the Fed will lower rates again Bernanke cut interest rateprobably by a more modest one-quarter percentage point at its next meeting in October and December, economist Richard Yamarone of Argus Research is of the opinion this is the only help needed and the Feds will not act anymore. But the Fed left the door open to its next rate move, saying it will “act as needed to foster price stability and sustainable economic growth.”

Some people said Bernanke is dead worry that people and businesses will cut back on their spending and investment, throwing the economy into a tailspin, thus the rate cut to ensure it doesn’t happen. As expected the dollar tumbled to a new all-time low against the euro after the rate cut simply because lower rates make the currency less attractive while crude oil futures spiked into record high of $81.51 a barrel, up 94 cents.

Needless to say, Asian stocks jumped on Wednesday morning trading in the wake of Wall Street’s overnight surge. Japan’s benchmark Nikkei 225 stock index soared 531.49 points, or 3.36 percent, to 16,333.29 points on the Tokyo Stock Exchange while Hong Kong’s Hang Seng Index jumped 791.34 points. Malaysia’s KLCI jumped over 19 points in early morning trading with high volume after days of low transaction due to the uncertainties. Now the ball is in Malaysia Central Bank’s court whether to follow the step in cutting the interest rate which can ease the suffering of homeowners.

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