The US central bank lowered rates to 3% from 3.5% after a two-day meeting. Last week, the Fed slashed the cost of borrowing by the largest amount in 25 years in a shock move to calm tumbling global stock markets. If you consider the double reduction over 9 days as one event, that’s a 1.25% drop – the largest ever.
The Fed is hoping the cuts will cushion the US economy from the worst effects of the credit crunch and housing slump. But it will not. It may buoy sentiment for a while, but reality will bite again soon. It is necessary that the behaviour of market participants becomes less volatile, and that requires a cultural change , an improvement in fiduciary behaviour and regulatory removal of moral hazard from Wall Street.