Markets, presidential candidates welcome central banks’ interest rate cut

After a 508-point drop in Dow Jones industrials on Tuesday, a coordinated emergency 0.5 percent interest-rate cut by central banks brought some confidence to the markets this morning. A joint statement, released by the Federal Reserve, is available here. reported, “The stock market had been heading to another sharp drop, joining world markets that were plunging in response to spiraling worries about the global financial system, when the Fed announced it was cutting rates by a half-percentage point. The central bank noted that the market turmoil posed a further threat to an already shaky economy; it was joined in the rate cut by banks including the European Central Bank and the Bank of England.

“But futures came off their highs and were fluctuating, a sign that while the markets are happy about the rate cut, investors realize that the stagnant credit markets and the economy remain extremely troubled and are likely to remain so for some time.”

“Also cutting rates were the central banks of China, Canada, Sweden, and Switzerland,” the Associated Press reported. “The Bank of Japan said it strongly supported the actions.”

The two presidential candidates issued statements praising the central banks’ move, too.

Here is a selection of reactions to today’s emergency efforts:

Scott Fullman, director of derivatives investment strategy for WJB Capital Group: “With all of this occurring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market. But the big question now is can the credit market open for business.”

Philip Shaw, economist at Investec:
“If you put everything together: the rate cut, the recapitalisation and the forthcoming details on the BoE’s liquidity operations, there are some big glimmers of hope after a very torrid 3 1/2 weeks, where the outlook has been looking increasingly gloomy.”

Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta: “They are throwing the kitchen sink in to try to find stability. They are clearly trying to get the transmission started again.”

Robert Leonardi, a senior lecturer on European Union politics at the London School of Economics:
“It should have been 1 percent to have a real impact.”‘

Sherry Cooper, BMO Nesbitt Burns chief economist:
“The Fed, for the first time in history, is now the lender of last resort to the business and government communities, taking on more credit risk than ever before as it continues to expand its balance sheet.”

Marc Chandler, global head of currency strategy at the investment firm Brown Brothers Harriman: “At first blush, while this is a big step, it is unlikely to prove sufficient to stem the rot. Additional rate cuts are likely and further measures to inject liquidity and re-capitalize banks are needed.” 

Ian Shepherdson, chief U.S. economist at High Frequency Economics: “At last, a coordinated show of force. The move is to be applauded but there is more to come. The playbook to avoid depressions says rates need to be as close to zero as possible.”

Jacques Cailloux, Royal Bank of Scotland economist: “These are extraordinary times. They require extraordinary policy responses.”

Sen. John McCain, Republican presidential candidate:
“I applaud the move by the Open Market Committee of the Federal Reserve and other national monetary authorities to reduce interest rates to address the financial crisis spreading across the globe. It is imperative at this moment that government be responsive to the needs of Americans, restore confidence in our financial system, provide assistance to struggling homeowners, and implement pro-growth policies that will create jobs and provide a foundation for a more prosperous future. That is why last night, I called for an American Homeownership Resurgence Plan — a plan to use taxpayer money not just to bail out Wall Street, but instead to keep families in their homes and to stabilize financial markets from the bottom up. I am committed to protecting the American worker in this crisis. I am dedicated to reforming the corruption in Washington and on Wall Street that is the root of the financial system meltdown. I will get the economy back on track.”

Sen. Barack Obama, Democratic presidential candidate:
“I’ve said before that this is a global crisis that requires a global solution, and so I support the action of the Federal Reserve and other central banks around the world to cut interests rates and ease the mounting pressure on global credit markets. I hope this response continues as leaders of major financial institutions and representatives from nations around the world gather in Washington. But it is clear that more urgent and vigorous action is necessary to stem this crisis, which is making it impossible for businesses large and small to get loans and may have already cost Americans nearly $2 trillion from their retirement accounts. The Treasury Department must move quickly to implement a plan based on the rescue package we passed last week and use the authority they already have to purchase troubled assets, including mortgages. It is also critical that Treasury, in coordination with other government agencies, move as vigorously as possible to help homeowners stay in their homes. And I call on Congress to immediately pass a rescue plan for our middle-class that will save one millions jobs and provide relief to struggling families, small businesses, and Americans who are losing their homes.”

Susan Albright, a MinnPost managing editor, writes about national and foreign developments. She can be reached at salbright [at] minnpost [dot] com.

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