Fed’s Bold Move Building Confidence

Liquidity, easy credit and steadiness are the main factors that the market was missing these last couple of quarters.

The Fed and the government are trying their best to bring investor confidence back by establishing different programs to lend money to investment banks and securities dealers, and by periodically slashing the Fed Funds rate and Discount Rate. That’s why the first half of the short week was completely dominated by news from the Fed. It started with an emergency move on Monday morning to cut the Discount Rate from 3.5% to 3.25%. In addition, the Fed established the Prime Dealer Credit Facility so that primary securities dealers can directly borrow money from the Fed and set up a $30 billion line of credit to assist JP Morgan. On Tuesday, The Federal Reserve cut its Fed Funds rate by three quarters, from 3% to 2.25%, and the Discount rate again by three quarters, from 3.25% to 2.50%. Investors have shown their support for the Fed’s move and both stocks and the Dollar rallied in response.