Another 50 basis points cut but Dow still in red

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Jan 31 2008
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As expected the Federal Reserve dropped its key rate by another 50 basis point to 3 percent in a 9-1 decision. It was the second Fed rate cut in just over a week, and the policymakers signaled they were prepared to keep going lower if needed. Last Tuesday Bernanke cut the rate by a rare three-quarter or 75 basis point. Wall Street rallied when the Dow jumped over 200 points after the announcement but serious profit-taking saw the Dow ended lower by over 37 points.

Some investors said expectations of more downgrades of bond issuers and uneasiness ahead of Thursday’s Commerce Department report on personal income and spending inflation prompted the profit taking. Other investors said key reports on the job market and manufacturing set to arrive Friday also added into the uncertainties. Just after the market closed Wednesday, Dow drop despite rate cutStandard & Poor’s downgraded about $50 billion worth of mortgage-backed securities and placed another $217 billion worth on negative watch.

The U.S. economy nearly stalled in the fourth quarter with a growth rate of just 0.6 percent, capping its worst year since 2002. For all of 2007, the economy grew by just 2.2 percent, the weakest performance in five years. In the fourth quarter, consumer spending slowed to a pace of 2 percent, down from a 2.8 percent growth rate in the prior quarter. Sales of U.S. goods and services abroad also slowed sharply in the fourth quarter with exports grew at a 3.9 percent pace, compared with a whopping 19.1 percent growth rate in the third quarter.

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