FED HINTS AT LOWER INTEREST RATES, Buying Commercial Paper from Corporations - But Stocks Continue To Tumble!
DOW DOWN 508 POINTS, OR 5.11%, AT CLOSE. NASDAQ DOWN 5.80%; S & P BROADER MARKET INDEX - DOWN 5.74%!
Is the U.S. Stock Market finding a bottom? And what effect will the market's fall, combined with the potential for lower Fed Interest Rates, have on the mortgage market, and the market for real estate, across the U.S.? No one seems to know.
Despite positive signals from the Chairman of the Federal Reserve Board to back Commercial Paper, and possibly reduce interest rates, stocks still tanked today, as anxious investors continued to flee what they consider to be a risky market.
In remarks to the National Association for Business Economics earlier today, Federal Reserve Board Chairman Ben Bernanke strongly hinted a reduction in the benchmark Fed Funds Rate may be necessary to jump start the economy.
"The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased," while the price outlook has "improved somewhat," Bernanke said.
"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate."
Many experts believe Bernanke's words signal the Federal Open Market Committee may reduce its benchmark rate when it meets again later this month. These experts feel concern about the inflationary aspects of further rate cuts will take a back seat to ongoing fear about the economy heading to serious recession.
The Fed Funds Rate, which has stood at 2% for the last five months, may dip to the 2003-low of 1%, some experts say.
Earlier today, the Fed announced a separate program to purchase certain unsecured and asset-back obligations from businesses, or "commercial paper." The initiative is aimed at building confidence in short-term credit markets, by removing the risk to investors that the issuers of the commercial paper will not be able to pay back their obligations.
In recent years, the Fed Funds Rate bore little relationship to 30-year Fixed Mortgage Rates - 10-Year T-Bills, also falling today, better predict mortgage rate levels.
But moves by the Fed can either bolster or erode investor confidence.
Apparently, no bolstering today! And increased fear that the Fed Chairman's words may actually indicate serious trouble lies ahead for the U.S. Economy may have actually helped to drive stocks down.
See Brian Blackstone's story in today's Wall Street Journal for more detail. Also in The Journal, Jon Hilsenrath discusses the Fed's plans to back Commercial Paper.
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