Jan 22 & Jan 30, 2008 - Fed Slashes Rates Twice In Two Weeks

Jan 2008 brought a lot of bad news into the markets. The collapse of Countrywide and downgrades of insurers like Ambac and MGIC raised concerns at the Fed.

In an emergency meeting on Jan 22, the Fed slashed its target Fed Funds rate 75 basis points from 4.25% to 3.5%.

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

On the initial news, the Dow Jones rallied 300 points. However, ultimately, that failed to calm markets. The Fed was forced to act again just eight days later. Unfortunately, that only served to give markets the sense that the Fed was really not in control. On Jan 30, the Fed cut its fed funds target by another 50 basis points to 3.0%.

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent. Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets."

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