It used to be that a three-quarter cut in interest rates by the Federal Reserve would have been considered a big move, but preceding expectations made it look like it was a conservative move, rather than a radical one.
This time around we didn't have quite the unanimity in the past, as the the Federal Open Market Committee (FOMC) voted 8-2 to cut the short-term rates from 3 percent to 2.25 percent. Many investors had hoped to see a full 1 percentage point cut.
The two dissenting votes came from Dallas Fed President Richard Fisher, and Philadelphia Fed President Charlet Plosser. Both of them wanted to slow the interest rate cut sizes down.
The discount rate the Fed charges banks and brokers for direct loans was also cut by 0.75 of a point to 2.5 percent. That leaves a quarter point spread over fed funds.
When Bernanke became head of the Federal Reserve, his key economic battle cry was to fight the growth of inflation. It could be that even though the U.S. dollar rallied some today, it is in real danger of plunging a lot more, and the smaller cut may have reflected those concerns.
The fall in crude oil prices today also had to bring a sigh of relief to the Fed, as investors had been driving up the price as they have migrated in droves to commodities to hedge their bets. This is important because crude oil is denominated in U.S. dollars.
As has been their habit lately, the Fed reiterated it's ready to cut more if the need arises. All economic indiactors are the need will arise, whether it's really the best way to respond or not.
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