Fed Funds Rate Cuts - Is Bernanke More Decisive?
The Federal Reserve announced a 75 basis point cut to its Fed Funds Target today, bringing the rate down to 2.25%, its lowest level since January 2005. The Fed has now cut the rate by 3.0% since it began easing in September of last year. How does 300 basis points over 180 days compare to past easing periods?
Looking at the chart above, the latest wave of cuts looks like it has progressed much more rapidly than past periods of cuts. The last time rates came down faster was during the heart of the 2001 recession. So is the current Fed actually more decisive in addressing the slowing growth or is the economic situation that much more dire?
Past stretches of 300 basis points cuts:
- Current stretch from 5.25% to 2.25 - 180 days from 9/18/2007 through 3/18/2008, six cuts
- From 4.0% to 1% - 718 days from 6/27/2001 through 6/25/2003, eight cuts
- From 5.0% to 2% - 172 days from 5/15/2001 through 11/6/2001, six cuts
- From 5.5% to 2.5% - 192 days from 3/20/2001 through 10/2/2001, six cuts
- From 6.0% to 3.0% - 227 days from 1/31/2001 through 9/17/2001, six cuts
- From 6.0% to 3.0% - 228 days from 1/3/2001 through 8/21/2001, six cuts
The markets paused as the news came out today but have since surged, with the Dow up close to 400 points. Leading the Dow today are Citigroup, AIG, Bank of America, GM and JP Morgan Chase .