Did Fed Freak With Emergency Rate Cut?

Decision smacks of panic—and worse trouble yet to come
By Jane Yager,  Newser Staff
Posted Jan 23, 2008 10:13 AM CST
Did Fed Freak With Emergency Rate Cut?
Federal Reserve Board Chairman, Ben Bernanke, speaks at the CATO Institute's annual Monetary Conference in Washington in this Nov. 14, 2007 file photo. (AP Photo/Caleb Jones, File)   (Associated Press)

(Newser) – Yesterday's steep interest rate cut—just a week ahead of a scheduled policy meeting—made the staid Federal Reserve come across as spooked and jumpy, leaving many to wonder if the Fed knows of worse news to come, Reuters' Ros Krasny writes. The surprise .75-point cut "is a declaration of a state of emergency for the US markets and the economy," a market strategist said.

Another went with a medical metaphor, calling it "emergency-room-style policy," with the Fed responding to an economy and financial system "going into cardiac arrest." The perception that they were forced by the markets into the move undermines the Fed's  credibility, one fund manager notes. And an economist adds that announcing that you're going into a recession becomes a self-fulfilling prophecy. (Read more Federal Reserve stories.)

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