The Fed Cuts the Discount Rate
Since the discount rate isn't "effective"--almost nobody is borrowing at it--cutting it is much more a symbolic than an actual move. Nevertheless, it is a symbolic move:
FT.com / Home UK / UK - Wall Street set for boost from Fed move: by Hal Weitzman in New York: Published: August 17 2007 14:07 | Last updated: August 17 2007 14:07: Wall Street stocks were set to extend Thursday’s late rally into Friday morning, after the Federal reserve surprised investors by cutting the discount rate at which regional Feds lend to banks by 50 basis points. The Fed cut the primary discount rate by one half of a point to 5.75 per cent, indicating it was concerned about financing conditions and suggesting it will use a range of policies rather than simply cutting interest rates.
“Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,” said the Fed. “In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.”
Rob Carnell, senior economist at ING Financial Markets, said: “This is effectively a move from a tightening bias to an easing bias. This opens the door to cuts of the Fed funds rate itself, should this be deemed necessary. There is still a possibility of an inter-meeting cut, or a cut at the September 18 meeting, though of course, if markets respond favourably this may be viewed as unnecessary."