Dow Jones Drops 294 Points As Federal Reserve Cuts Rates

As the Federal Reserve cuts its key lending rate for the third time in a row today Wall Street reacts poorly as it was expecting a half point reduction.

The Federal Reserve lowered the target for the federal funds rate to 4.25 from 4.5 allowing banks to borrower for less on overnight loans. In addition to this rate they also lowered its discount rate, the price that it charges for loans it makes directly to banks, by a quarter of a point to 4.75 percent.

Many analysts believe that the cut was not as forceful as it should have been. This hints that the Federal Reserve officials cant agree on how much they can do about the credit crunch that was created by the subprime mortgage crisis. Some believe that the quarter point cut was an uncomfortable compromise between one half favoring a half point reduction and the other half preferring to hold rates steady.

Until two weeks ago, it appeared that the Fed did not intend to do any more rate cutting despite growing fallout in the financial system from the housing and mortgage crisis. In a series of speeches, key central bank officials sought to downplay the need for further reductions.

On Nov. 5, Federal Reserve board member Frederic Mishkin told a New York audience that the central bank’s September and October cuts “reduced significantly the downside risks to growth so that those risks are now balanced by the upside risks to inflation.”

To read more about fed rate cut disappoints wall street head on over to the Los Angeles Times.