Fed cuts rates by 0.75% to 3.50%
22 January 2008
In what has been a volatile days trading on both the foreign exchange and equity markets, the Federal Reserve surprised the market by announcing an emergency Fed Funds rate cut by 0.75% to 3.5%.
The decision was made in response to increased risks of an economic downturn, as recent economic data has implied. Continued contraction within the housing sector, remaining constraints within the credit markets and softening labour markets prompted the Fed to cut rates at their most aggressive pace since October 1984. The Fed also cut the discount rate, the rate it charges on direct loans to banks, by 0.75% to 4.0%.
The initial reaction was Sterling to surge higher against the Dollar, up to 1.9598 before retracing gains to current trading levels at 1.9500. The Euro also appreciated against the Greenback to 1.4592, before giving back half a cent to 1.4540.