Ben Bernanke made a sharp move – he lowered the US interest rate to almost the lowest possible value: 0.25%. One step further, and it’s zero – nothing.Â
The sharp 0.75 reduction in the overnight rate was anticipated by some traders, but most of them were expecting a somewhat more moderate cut of 0.50%.
The move sent the dollar plunging against all the currencies. In the classic pair, EUR/USD, the Euro broke another round number, and is now traded above 1.40. The GBP/USD is also high, at about 1.55. Even the Japanese Yen took a step forward – USD/JPY is at 89.
The statement that was made by the Federal Reserve was strong as well: Bernanke said that he’ll use any possible means to stimulate the economy, and that the historically low level of interest rates will remain here for a while.
The reasons for the aggresive decision were the continuing deterioation in the job market, consumer sentiment, consumer expenditure and manufacturing.Â
Also the financial markets were mentioned as shaky, and the credit crunch still looming.
A new policy of “Quantitative Easing†– spilling more money into the markets will adopted instead of the current interest rate policy – which is almost totally exhausted.
