The US Federal Reserve has cut interest rates by a quarter of a per cent, as expected.
But the news saw the market plunge, shedding more than 170 points in less than 15 minutes after the statement was issued at 6.15 am Australian time today as investors saw no mention of future rate cuts, or even a hint.
The fall then continued until the close of trading around 8 am our time with the Dow off 294 points in one of the biggest falls of the year. That was a fall of 2.14%. Bigger falls were taken on the S&P 500, off 2.53% and Nasdaq, down 2.45%.
The US dollar was mixed but our dollar plunged nearly 1.70 cents to end at 87.18 USc compared to the close yesterday in Sydney of 88.68 USc.
Some in the markets wanted half a per cent, and other analysts saw the mention of inflation as meaning the Fed will bet reluctant to trim rates further for the time being.
But the Fed did say it would 'act as needed" to foster price stability and foster economic growth. But clearly the market wanted more.
There was concern at the comments on the economy, but that was a bit misplaced as the Fed chairman and his deputy softened up the market two weeks ago with a switch of tack on the problems in the financial sector and the outlook for growth.
Others said the Fed statement didn't continue that changed emphasis in the latest decision and seemed to revert to the October 31 approach of 'finished cutting for the time being'
But it was the third straight time that Fed Chairman Ben Bernanke and the committee have cut the key Federal Funds Rate because of the slumping US economy and the worsening condition of credit markets and the financial sector.
It takes the cuts so far to 1%.
The Fed's Open Market Committee said in a statement this morning that it had "decided today to lower its target for the federal funds rate 0.25% to 4.25%."
And the Fed also trimmed its Discount Rate, which is charged to banks for emergency loans, by the same amount to 4.75%.
There had been pressure from the market for a half a per cent cut in the Discount Rate.
The Fed said in the post statement meeting that "Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.
"Moreover, strains in financial markets have increased in recent weeks.
"Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time.
"Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.
"In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.
"The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."
Our market hit a four week high yesterday; the Wall Street reception for the Fed's decision will see that reversed today.
