----- Original Message ----- From: Mark Jones <[EMAIL PROTECTED]> To: crl <[EMAIL PROTECTED]> Sent: Friday, January 05, 2001 6:45 AM Subject: [CrashList] Independent: Fed cuts again US central bank makes second rate cut By Mary Dejevsky in Washington 5 January 2001 The US central bank supplemented Wednesday's surprise interest rate reduction with a further reduction in a secondary rate at the urging of its regional banks yesterday. The Federal Reserve announced the change after American markets closed yesterday evening, as evidence multiplied of the extent of the economic slowdown. Wall Street had fallen back on profit-taking, after its record gains of the previous day. The Dow Jones stock index lost 33.34 points, while the technology-weighted Nasdaq index shed 49.86 of the 324 points it had gained on Wednesday. The markets were also anticipating disappointing unemployment figures due out today. General Motors added to the gloom by announcing 20,000 lay-offs at eight plants after a poor end-of-year sales performance. The Federal Reserve's new move reduced the discount rate the rate the Fed charges commercial banks for loans by a further 0.25 points to 5.5 per cent. On Wednesday, the Fed slashed the main interbank lending rate, the federal funds rate, from 6.5 to 6 per cent, but cut the discount rate by only half that amount. However, it had held open the prospect of a further 0.25 per cent cut should the 12 regional Federal Reserve banks request it. That is what they did yesterday unanimously. The rate reductions were highly unusual in that they came between the regular meetings of the Fed's ratesetting open markets committee. The next meeting is due at the end of this month, and any further adjustment of the discount rate had been expected then. The last time reductions were announced between meetings was two years ago, when the US economy appeared threatened by the Asian economic crisis. What amounted to emergency action by the Fed was seen as an attempt to avert an excessive slowdown after the markets fell sharply. There was no immediate explanation for the rapid follow-up by the regional Fed banks yesterday. Some analysts speculated that the two rapid cuts in the federal funds rate might have highlighted an imbalance or potential liquidity problem. Others cited the shortlived optimism of the markets after Wednesday's rate cuts. "This rate cut is more symbolic, but it also causes a great deal of a psychological benefit to the market," said Art Hogan, an analyst at Jefferies & Co. "This is an amazing move by the Fed to do this after hours is relatively shocking." He said the Fed may have acted after seeing US jobs data for December, which is due out today. _______________________________________________ Crashlist website: http://website.lineone.net/~resource_base
