Fed Cuts Discount Rate to 5.75%, Cites `Downside' Risks

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ASusilovic

The Federal Reserve, in an unscheduled meeting, cut the discount rate to 5.75 percent from 6.25 percent, noting market conditions have deteriorated since it last met Aug. 7.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward, '' the central bank's Federal Open Market Committee said in a statement. ``The downside risks have increased appreciably.''

The FOMC left the overnight federal funds target rate unchanged at 5.25 percent.
 
excellent, so early in the crisis with markets not even down 10%, isn't that a sign of desperation or lack of experience?

Great shorting opportunity.
 
In Japan in the early 90's, they cut their discount rate almost to zero. Still did not help their economy.

All this move today did is highlight : The US is in trouble.
 
The target rate applies to the interbank market. The discount rate is the rate at which banks can borrow directly from the Fed. They are probably trying to send the signal that they will make sure the banking system remains funded, but don't want to appear to be "bailing out" asset markets directly.
 
Quote from ASusilovic:

The Federal Reserve, in an unscheduled meeting, cut the discount rate to 5.75 percent from 6.25 percent, noting market conditions have deteriorated since it last met Aug. 7.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward, '' the central bank's Federal Open Market Committee said in a statement. ``The downside risks have increased appreciably.''

The FOMC left the overnight federal funds target rate unchanged at 5.25 percent.
More...

This is a move to help the banks who borrow directly from the fed. Who always profits? the central banks.

Now the banks can borrow cheaper, don't count on the prime rate falling, the banks will not pass this on to the consumer.
 
let it levitate for a few days then hit it back hard.

The delevering will not stop today but the message is clear. The Fed will do whatever it takes to keep this artificial reality together.

Until the day all credibility is lost...
 
Nobody ever borrows directly from Fed, I believe the last time anybody ever borrowed at the discount rate was when continental airlines when bankrupt in 1983.

The reason why nobody borrows at the discount rate is because the discount rate is higher than the target overnight rate. Banks can borrow at libor anyway, the fed pumps liquidity to make sure the overnight rate doesn't stray from the target. Firms having liquidity problems right now are not able to borrow from the fed anyway.

It's just a confidence boosting measure, I think.
 
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