Whoa-- apparently the 0.5% interest rate cut the Federal Reserve announced a couple of hours ago wasn't entirely anticipated by the market! Currently the Dow Jones index is up more than 330 points, or more than 2.5%! The rate reduction was the first in four years, and was unusually steep by the Fed standards. The Times reports:
While an interest rate cut was widely expected, there had been profound uncertainty about whether the Fed would choose a more cautious quarter-point reduction. But the bolder action and an accompanying statement, both approved by a unanimous vote of the central bank’s policy-setting committee, made it clear that the Fed had decided the risks of a recession were too big to ignore.
"Developments in financial markets since the committee’s last regular meeting have increased the uncertainty surrounding the economic outlook," the central bank said. Signaling that it might cut rates more if necessary in months ahead, it said it would "continue to assess" the economic outlook and "act as needed to foster price stability and sustainable economic growth."
Why should you care what some fusty old bankers do with their rates? Here's a simple chain of logic: Federal Rate Cut = Big Economic Stimulus = Larger Wall Street Bonuses = Higher Real Estate Prices = You're Renting FOREVER, sucker! Many observers have also raised the specter of "moral hazard"-- that those reckless bankers downtown and in Greenwich will see the Fed's move as a bailout, and will take it as a sign that they can make even riskier investments down the road without worrying about losing their shirts. That could lead to very, very bad things ahead. Beware!
Related: DealBreaker commenters go wild on hearing the news