WASHINGTON – U.S. Treasury Secretary Henry S. Paulson Jr. said today the Federal Reserve’s emergency 0.75-percent cut in the interest rate may boost investor confidence, Bloomberg News reports.
As Paulson delivered a speech on the health of the U.S. economy, Fed policymakers were taking action to head off the threat of recession and the global stock-market’s decline.
The Federal Open Market Committee – in a rare emergency decision – pared the benchmark federal funds interest rate to 3.5 percent from the previous 4.25 percent. (The 0.75-percent cut was in line with futures contracts quoted earlier this month on the Chicago Board of Trade, though few analysts or investors had expected the FOMC to act before its regular meeting Jan. 29-30. READ MORE)
“What I think it shows to this country and the rest of the world is that our central bank is nimble and is able to move quickly to respond to market conditions,” Paulson said after his speech, when asked about the FOMC’s decision. “That should be a confidence builder.”
His speech to the U.S. Chamber of Commerce had been scheduled since Jan. 18. It came after a two-day plunge in European and Asian stocks markets, fueled by mounting concerns the United States may be headed into a recession.
“We need to do something now, because the short-term risks are clearly to the downside,” Paulson said in the speech, according to Bloomberg News. He reiterated that the U.S. housing market is undergoing a “significant” correction and the economy’s growth has slowed “materially in recent weeks.”
U.S. stocks fell in early trading today, as markets reopened after the Rev. Martin Luther King Jr. holiday. By 9:37 a.m. in New York, the Standard & Poor’s 500 Index down 50.5 points, or 3.8 percent, to 1,274.7 and the Dow Jones Industrial Average off 450.7, or 3.7 percent, to 11,648.6 points. The S&P 500 is down about 13 percent since the start of the year.
Yesterday’s 3-percent decline in the MSCI World Index – the steepest since 2002 – left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their recent highs. Declines today turned Indonesia, India, the Philippines, Taiwan and Thailand into bear markets as well.
Additional information about the Federal Reserve System, including past policy statements issued by the Federal Open Market Committee, can be found at www.federalreserve.gov.
