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Fed Continues With Aggressive Easing Policy

The Federal Reserve cut the Federal Fund’s Rate an additional fifty basis-points today bringing the rate down to 2.5%, the lowest level since 1963. The half-point cut was expected by most economists, which makes this the ninth rate reduction of the year. Stock Traders Press expects the Fed fund’s rate to rest between 2% to 2.5% by calendar year-end. The Fed also cut the seldom-used discount rate to 2% from 2.5%.

“Long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate,” said the FOMC in announcing in its latest monetary policy move. “The Committee continues to believe that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”

The interest-rate cuts don’t move stocks like they used to in the past. Back on Jan 3, when the Fed cut 50 basis points, both the Dow and Nasdaq closed over 300 points higher. Investors simply aren’t convinced that the cuts are going to drive businesses to spend more in the near future. On the contrary, companies are working hard to cut, rather than to grow, their spending levels in the midst of what many believe to be a mild recession.

Typically, the economic effect of Fed rate cuts isn’t seen until six to nine months after they are made. Stock Traders Press believes the rate cuts will aid in stabilizing our economy during the first quarter of 2002. - Staff Analysts

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