Federal Reserve Cuts Interest Rates Again

WASHINGTON, DC-For the sixth straight time since September, Federal Reserve chairman Ben S. Bernanke led the Federal Open Market Committee in lowering the federal funds benchmark rate by 75 basis points, bringing it to 2.25%–the lowest it has been since December 2004. It wasn’t the full percentage point reduction that many in the market had been expecting, but the accompanying language from the committee indicates that more cuts will be made if necessary.

In a statement the committee said the “outlook for economic activity has weakened further” warning that “the tightening of the credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.”

Oddly enough, the reason given for the smaller rate reduction–inflationary pressures were cited by the committee–is providing some comfort in the investment community. Greg Womack, principal of Womack Investment Advisers, an investment advisory firm tells GlobeSt.com that this cut–as well as other measures the Fed has taken in recent days–will help to inject more liquidity into the market. “But inflation is a worry too and it is being fueled by a weak dollar. Costs will continue to rise until it is addressed.”

The equity markets, though, were happy enough with the 0.75% cut: the S&P Index rose 4.2% yesterday; the Dow Jones industrial average was up 420 points in response to the news along with the better than expected earnings from Lehman Bros. and Goldman Sachs yesterday.