Fed Lowers Rates, Wall Street Tumbles

Previous two Fed Reserve rate adjustment saw a scoring Wall Street. The third adjustment this year to prevent economic fallout and recession was not well received immediately after the adjustment.

Investors had braced themselves for a 0.25% cut in interest rate, but was expecting a 0.50% cut instead. Fed Reserve had suggested that the three rate cuts ordered thus far "should help promote moderate growth over time," but many economists and analysts had hoped the Fed rate-making body, the Federal Open Market Committee, would cut the fed funds rate to 4%. And they hoped the Fed would convey a sense of urgency about the condition of the economy. (source : http://articles.moneycentral.msn.com/Investing/Dispatch/071211markets.aspx)

To cut the interest rates too much may expose the US to vulnerably of an outbreak in inflation but small reduction leads to market sliding southwards. What a dilemna. What could have held Fed from cutting further? The fear of inflation or lacking funds?

In contrast, China had adjusted their interest rates upwards several times this year to prevent overheating of their economy. China being one of the largest economy in the world, had seen double digit growth in the last few years. Will China's economy slowdown soon?

China's Central Bank announced on 8 Dec 07, that it will raise the bank reserve ratio requirement by a full percentage point to 14.5 percent on December 25. It said the move is "in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,". (source : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/316297/1/.html)

Let's hope the US problem doesn't turn into a major global downturn. In the mean time, it is still safer to be prudent and be prepared for any shocks.