The Fed shaves (more like 'lops') 75 basis points off rates

The US Federal Reserve dropped its overnight lending rate by an almost unprecedented 0.75 per cent this morning to 3.5 per cent in the wake of the sell-off in stockmarkets worldwide yesterday and today. At the same time it lowered its discount rate by 0.75 per cent to 4.0 per cent. It would seem that the move has had, at least for the time being, the desired effect in that the New York market had, at the time of writing recovered much of the losses at the beginning of today's session to leave it about 1 per cent down on Friday's close (the US markets were closed yesterday for a Public Holiday) at present. The London market has closed higher after early severe falls, largely in the wake of the Fed cuts. It closed at 5,740.10, up 2.9 per cent.

The US Dollar is down on the day so far against other major currencies and it is being speculated there may be further interest rate cuts at the Fed's meeting next week, perhaps by a further 25 basis points - which would take the cut during the eight days from this morning down a full percentage point, the droanticipated for the whole of 2008, if that happens.

Whatever the immediate effects of the Fed cut today, which seem to be 'beneficial' so far, it does indicate a certain level of raw panic on the part of the US authorities in the wake of the wave of turbulence in the world's financial markets, themselves reacting to the fragility of the US lending market. I put that word in scare quotes because I worry that any benefit today's move will confer will be short-lived - giving more drugs (money and easier credit) to a drug addict may very temporarily stave off the effects of the drug withdrawal (credit-crunch) we have seen over the past few months, but attacking the symptoms by such methods is unlikely to remedy the underlyingh causes. I fear that this is only the beginning of a quite [to make use of a somewhat tired pun] Rocky Road. An appearance by Ben Bernanke, Chairman of the Fed, just a few days ago does not seem to me to show a man brimming with confidence:



He presumably knows a lot more about what is going on than most of the rest of us, so his somewhat nervous hand-twitching towards the end of the above sequence gives me the jitters. I'm not panicking yet, however - and in any case in a panic people do things which only make the situation worse than it really is. Probably the best thing to do just at present is to take a deep breath and hope the roller-coaster ride we may be in for does not shake too many of us out of the game!